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115th Congress   }                                 {     Rept. 115-445
                        HOUSE OF REPRESENTATIVES
 1st Session     }                                 {            Part 1

======================================================================

 
AMENDING TITLE XVIII OF THE SOCIAL SECURITY ACT TO REDUCE THE VOLUME OF 
 FUTURE ELECTRONIC HEALTH RECORD-RELATED SIGNIFICANT HARDSHIP REQUESTS

                                _______
                                

                December 6, 2017.--Ordered to be printed

                                _______
                                

 Mr. Walden, from the Committee on Energy and Commerce, submitted the 
                               following

                              R E P O R T

                        [To accompany H.R. 3120]

      [Including cost estimate of the Congressional Budget Office]

    The Committee on Energy and Commerce, to whom was referred 
the bill (H.R. 3120) to amend title XVIII of the Social 
Security Act to reduce the volume of future electronic health 
record-related significant hardship requests, having considered 
the same, report favorably thereon without amendment and 
recommend that the bill do pass.

                                CONTENTS

                                                                   Page
Purpose and Summary..............................................     1
Background and Need for Legislation..............................     2
Committee Action.................................................     2
Committee Votes..................................................     3
Oversight Findings and Recommendations...........................     3
New Budget Authority, Entitlement Authority, and Tax Expenditures     3
Congressional Budget Office Estimate.............................     3
Federal Mandates Statement.......................................     4
Statement of General Performance Goals and Objectives............     4
Duplication of Federal Programs..................................     4
Committee Cost Estimate..........................................     4
Earmark, Limited Tax Benefits, and Limited Tariff Benefits.......     4
Disclosure of Directed Rule Makings..............................     4
Advisory Committee Statement.....................................     4
Applicability to Legislative Branch..............................     4
Section-by-Section Analysis of the Legislation...................     4
Changes in Existing Law Made by the Bill, as Reported............     5
Exchange of Letters with Additional Committees of Referral.......   216

                          Purpose and Summary

    H.R. 3120 was introduced on June 29, 2017, by Rep. Michael 
C. Burgess, M.D. (R-TX). H.R. 3120 would remove a requirement 
that requires the Secretary of Health and Human Services (HHS) 
to continue to make meaningful use standards more stringent 
over time.

                  Background and Need for Legislation

    The Health Information Technology for Economic and Clinical 
Health (HITECH) Act HHS to continue to make meaningful use 
standards more stringent over time. While the meaningful use 
program has been very successful in driving adoption of 
electronic health records (EHRs), many providers have struggled 
to meet the requirements of meaningful use. As the Secretary is 
mandated to continue to raise the standards over time, more and 
more providers are falling behind, and this trend is likely to 
continue. When this happens, providers will often seek a 
hardship waiver to acknowledge they could not meet the 
increased standards. This increases the burden on HHS to 
process an ever increasing number of hardship requests for 
standards that they recognize may outpace where providers are 
in adoption and use of EHRs. The bill removes the mandate that 
meaningful use standards become more stringent over time and 
allows the Department to be more deliberative in such 
evaluations.

                            Committee Action

    On July 20, 2017, the Subcommittee on Health held a hearing 
on H.R. 3120. The hearing was entitled Examining Bipartisan 
Legislation to Improve the Medicare Program. The Subcommittee 
received testimony from:
           Christel Aprigliano, CEO, Diabetes Patient 
        Advocacy Coalition;
           Lisa Bardach, Speech-Language Pathologist, 
        ALS of Michigan;
           K. Eric De Jonge, President-Elect, American 
        Academy of Home Care Medicine (AAHCM);
           Cletis Earle, Chairman-Elect, CHIME Board of 
        Trustees;
           Mary Grealy, President, Healthcare 
        Leadership Council;
           Deepak A. Kapoor, Chairman and CEO, 
        Integrated Medical Professionals;
           Brett Kissela, Chair, Department of 
        Neurology and Rehabilitation Medicine, University of 
        Cincinnati Gardner Neuroscience Institute, on behalf of 
        American Academy of Neurology;
           Justin Moore, CEO, American Physical Therapy 
        Association;
           Alan E. Morrison, Chair, Diagnostic Services 
        Committee, National Association for the Support of Long 
        Term Care (NASL);
           Varner Richards, Board Chair, National Home 
        Infusion Association; and
           Stacy Sanders, Federal Policy Director, 
        Medicare Rights Center.
    On September 13, 2017, the Subcommittee on Health met in 
open markup session and forwarded H.R. 3120, without amendment, 
to the full Committee by a voice vote. On October 4, 2017, the 
full Committee on Energy and Commerce met in open markup 
session and ordered H.R. 3120, without amendment, favorably 
reported to the House by a voice vote.

                            Committee Votes

    Clause 3(b) of rule XIII requires the Committee to list the 
record votes on the motion to report legislation and amendments 
thereto. There were no record votes taken in connection with 
ordering H.R. 3120 reported.

                 Oversight Findings and Recommendations

    Pursuant to clause 2(b)(1) of rule X and clause 3(c)(1) of 
rule XIII, the Committee held a hearing and made findings that 
are reflected in this report.

   New Budget Authority, Entitlement Authority, and Tax Expenditures

    Pursuant to clause 3(c)(2) of rule XIII, the Committee 
finds that H.R. 3120 would result in no new or increased budget 
authority, entitlement authority, or tax expenditures or 
revenues.

                  Congressional Budget Office Estimate

    Pursuant to clause 3(c)(3) of rule XIII, the following is 
the cost estimate provided by the Congressional Budget Office 
pursuant to section 402 of the Congressional Budget Act of 
1974:

H.R. 3120--A bill to amend title XVIII of the Social Security Act to 
        reduce the volume of future electronic health record-related 
        significant hardship requests

    H.R. 3120 would eliminate a requirement that, over time, 
the Secretary of Health and Human Services must make the 
criteria more stringent for physicians and hospitals to achieve 
``meaningful use'' of electronic technology for health records. 
Under current law, some providers (in Medicaid) may be eligible 
for bonus payments if they achieve meaningful use, and some 
providers (in Medicare) may be subject to penalties if they 
fail to achieve meaningful use.
    In recent years, the Secretary has used a combination of 
requiring criteria to be more stringent over time and hardship 
exemptions in a manner that has not significantly affected the 
number of providers subject to bonus payments or penalties. 
Based on that history, CBO estimates that enacting H.R. 3120 
would not have a significant effect on the federal budget.
    Enacting H.R. 3120 would not affect direct spending or 
revenues; therefore, pay-as-you-go procedures do not apply.
    CBO estimates that enacting H.R. 3120 would not increase 
net direct spending or on-budget deficits in any of the four 
consecutive 10-year periods beginning in 2028.
    H.R. 3120 contains no intergovernmental or private-sector 
mandates as defined in the Unfunded Mandates Reform Act.
    The CBO staff contact for this estimate is Philippa Haven. 
The estimate was approved by Theresa Gullo, Assistant Director 
for Budget Analysis.

                       Federal Mandates Statement

    The Committee adopts as its own the estimate of Federal 
mandates prepared by the Director of the Congressional Budget 
Office pursuant to section 423 of the Unfunded Mandates Reform 
Act.

         Statement of General Performance Goals and Objectives

    Pursuant to clause 3(c)(4) of rule XIII, the general 
performance goal or objective of this legislation is to repeal 
the requirement that HHS continue to make meaningful use 
standards more stringent over time.

                    Duplication of Federal Programs

    Pursuant to clause 3(c)(5) of rule XIII, no provision of 
H.R. 3120 is known to be duplicative of another Federal 
program, including any program that was included in a report to 
Congress pursuant to section 21 of Public Law 111-139 or the 
most recent Catalog of Federal Domestic Assistance.

                        Committee Cost Estimate

    Pursuant to clause 3(d)(1) of rule XIII, the Committee 
adopts as its own the cost estimate prepared by the Director of 
the Congressional Budget Office pursuant to section 402 of the 
Congressional Budget Act of 1974.

       Earmark, Limited Tax Benefits, and Limited Tariff Benefits

    Pursuant to clause 9(e), 9(f), and 9(g) of rule XXI, the 
Committee finds that H.R. 3120 contains no earmarks, limited 
tax benefits, or limited tariff benefits.

                  Disclosure of Directed Rule Makings

    Pursuant to section 3(i) of H. Res. 5, the Committee finds 
that H.R. 3120 contains no directed rule makings.

                      Advisory Committee Statement

    No advisory committees within the meaning of section 5(b) 
of the Federal Advisory Committee Act were created by this 
legislation.

                  Applicability to Legislative Branch

    The Committee finds that the legislation does not relate to 
the terms and conditions of employment or access to public 
services or accommodations within the meaning of section 
102(b)(3) of the Congressional Accountability Act.

             Section-by-Section Analysis of the Legislation


Section 1. Reducing the volume of future EHR-related significant 
        hardship requests

    Section 1 amends the Health Information Technology for 
Economic and Clinical Health (HITECH) Act in order to remove a 
requirement that requires the Secretary of Health and Human 
Services (HHS) to continue to make meaningful use standards 
more stringent over time.

         Changes in Existing Law Made by the Bill, as Reported

  In compliance with clause 3(e) of rule XIII of the Rules of 
the House of Representatives, changes in existing law made by 
the bill, as reported, are shown as follows (existing law 
proposed to be omitted is enclosed in black brackets and 
existing law in which no change is proposed is shown in roman):

                          SOCIAL SECURITY ACT




           *       *       *       *       *       *       *
TITLE XVIII--HEALTH INSURANCE FOR THE AGED AND DISABLED

           *       *       *       *       *       *       *



   Part B--Supplementary Medical Insurance Benefits for the Aged and 
Disabled

           *       *       *       *       *       *       *



                    PAYMENT FOR PHYSICIANS' SERVICES

  Sec. 1848. (a) Payment Based on Fee Schedule.--
          (1) In general.--Effective for all physicians' 
        services (as defined in subsection (j)(3)) furnished 
        under this part during a year (beginning with 1992) for 
        which payment is otherwise made on the basis of a 
        reasonable charge or on the basis of a fee schedule 
        under section 1834(b), payment under this part shall 
        instead be based on the lesser of--
                  (A) the actual charge for the service, or
                  (B) subject to the succeeding provisions of 
                this subsection, the amount determined under 
                the fee schedule established under subsection 
                (b) for services furnished during that year (in 
                this subsection referred to as the ``fee 
                schedule amount'').
          (2) Transition to full fee schedule.--
                  (A) Limiting reductions and increases to 15 
                percent in 1992.--
                          (i) Limit on increase.--In the case 
                        of a service in a fee schedule area (as 
                        defined in subsection (j)(2)) for which 
                        the adjusted historical payment basis 
                        (as defined in subparagraph (D)) is 
                        less than 85 percent of the fee 
                        schedule amount for services furnished 
                        in 1992, there shall be substituted for 
                        the fee schedule amount an amount equal 
                        to the adjusted historical payment 
                        basis plus 15 percent of the fee 
                        schedule amount otherwise established 
                        (without regard to this paragraph).
                          (ii) Limit in reduction.--In the case 
                        of a service in a fee schedule area for 
                        which the adjusted historical payment 
                        basis exceeds 115 percent of the fee 
                        schedule amount for services furnished 
                        in 1992, there shall be substituted for 
                        the fee schedule amount an amount equal 
                        to the adjusted historical payment 
                        basis minus 15 percent of the fee 
                        schedule amount otherwise established 
                        (without regard to this paragraph).
                  (B) Special rule for 1993, 1994, and 1995.--
                If a physicians' service in a fee schedule area 
                is subject to the provisions of subparagraph 
                (A) in 1992, for physicians' services furnished 
                in the area--
                          (i) during 1993, there shall be 
                        substituted for the fee schedule amount 
                        an amount equal to the sum of--
                                  (I) 75 percent of the fee 
                                schedule amount determined 
                                under subparagraph (A), 
                                adjusted by the update 
                                established under subsection 
                                (d)(3) for 1993, and
                                  (II) 25 percent of the fee 
                                schedule amount determined 
                                under paragraph (1) for 1993 
                                without regard to this 
                                paragraph;
                          (ii) during 1994, there shall be 
                        substituted for the fee schedule amount 
                        an amount equal to the sum of--
                                  (I) 67 percent of the fee 
                                schedule amount determined 
                                under clause (i), adjusted by 
                                the update established under 
                                subsection (d)(3) for 1994 and 
                                as adjusted under subsection 
                                (c)(2)(F)(ii) and under section 
                                13515(b) of the Omnibus Budget 
                                Reconciliation Act of 1993, and
                                  (II) 33 percent of the fee 
                                schedule amount determined 
                                under paragraph (1) for 1994 
                                without regard to this 
                                paragraph; and
                          (iii) during 1995, there shall be 
                        substituted for the fee schedule amount 
                        an amount equal to the sum of--
                                  (I) 50 percent of the fee 
                                schedule amount determined 
                                under clause (ii) adjusted by 
                                the update established under 
                                subsection (d)(3) for 1995, and
                                  (II) 50 percent of the fee 
                                schedule amount determined 
                                under paragraph (1) for 1995 
                                without regard to this 
                                paragraph.
                  (C) Special rule for anesthesia and radiology 
                services.--With respect to physicians' services 
                which are anesthesia services, the Secretary 
                shall provide for a transition in the same 
                manner as a transition is provided for other 
                services under subparagraph (B). With respect 
                to radiology services, ``109 percent'' and ``9 
                percent'' shall be substituted for ``115 
                percent'' and ``15 percent'', respectively, in 
                subparagraph (A)(ii).
                  (D) Adjusted historical payment basis 
                defined.--
                          (i) In general.--In this paragraph, 
                        the term ``adjusted historical payment 
                        basis'' means, with respect to a 
                        physicians' service furnished in a fee 
                        schedule area, the weighted average 
                        prevailing charge applied in the area 
                        for the service in 1991 (as determined 
                        by the Secretary without regard to 
                        physician specialty and as adjusted to 
                        reflect payments for services with 
                        customary charges below the prevailing 
                        charge or other payment limitations 
                        imposed by law or regulation) adjusted 
                        by the update established under 
                        subsection (d)(3) for 1992.
                          (ii) Application to radiology 
                        services.--In applying clause (i) in 
                        the case of physicians' services which 
                        are radiology services (including 
                        radiologist services, as defined in 
                        section 1834(b)(6)), but excluding 
                        nuclear medicine services that are 
                        subject to section 6105(b) of the 
                        Omnibus Budget Reconciliation Act of 
                        1989, there shall be substituted for 
                        the weighted average prevailing charge 
                        the amount provided under the fee 
                        schedule established for the service 
                        for the fee schedule area under section 
                        1834(b).
                          (iii) Nuclear medicine services.--In 
                        applying clause (i) in the case of 
                        physicians' services which are nuclear 
                        medicine services, there shall be 
                        substituted for the weighted average 
                        prevailing charge the amount provided 
                        under section 6105(b) of the Omnibus 
                        Budget Reconciliation Act of 1989.
          (3) Incentives for participating physicians and 
        suppliers.--In applying paragraph (1)(B) in the case of 
        a nonparticipating physician or a nonparticipating 
        supplier or other person, the fee schedule amount shall 
        be 95 percent of such amount otherwise applied under 
        this subsection (without regard to this paragraph). In 
        the case of physicians' services (including services 
        which the Secretary excludes pursuant to subsection 
        (j)(3)) of a nonparticipating physician, supplier, or 
        other person for which payment is made under this part 
        on a basis other than the fee schedule amount, the 
        payment shall be based on 95 percent of the payment 
        basis for such services furnished by a participating 
        physician, supplier, or other person.
          (4) Special rule for medical direction.--
                  (A) In general.--With respect to physicians' 
                services furnished on or after January 1, 1994, 
                and consisting of medical direction of two, 
                three, or four concurrent anesthesia cases, 
                except as provided in paragraph (5), the fee 
                schedule amount to be applied shall be equal to 
                one-half of the amount described in 
                subparagraph (B).
                  (B) Amount.--The amount described in this 
                subparagraph, for a physician's medical 
                direction of the performance of anesthesia 
                services, is the following percentage of the 
                fee schedule amount otherwise applicable under 
                this section if the anesthesia services were 
                personally performed by the physician alone:
                          (i) For services furnished during 
                        1994, 120 percent.
                          (ii) For services furnished during 
                        1995, 115 percent.
                          (iii) For services furnished during 
                        1996, 110 percent.
                          (iv) For services furnished during 
                        1997, 105 percent.
                          (v) For services furnished after 
                        1997, 100 percent.
          (5) Incentives for electronic prescribing.--
                  (A) Adjustment.--
                          (i) In general.--Subject to 
                        subparagraph (B) and subsection 
                        (m)(2)(B), with respect to covered 
                        professional services furnished by an 
                        eligible professional during 2012, 2013 
                        or 2014, if the eligible professional 
                        is not a successful electronic 
                        prescriber for the reporting period for 
                        the year (as determined under 
                        subsection (m)(3)(B)), the fee schedule 
                        amount for such services furnished by 
                        such professional during the year 
                        (including the fee schedule amount for 
                        purposes of determining a payment based 
                        on such amount) shall be equal to the 
                        applicable percent of the fee schedule 
                        amount that would otherwise apply to 
                        such services under this subsection 
                        (determined after application of 
                        paragraph (3) but without regard to 
                        this paragraph).
                          (ii) Applicable percent.--For 
                        purposes of clause (i), the term 
                        ``applicable percent'' means--
                                  (I) for 2012, 99 percent;
                                  (II) for 2013, 98.5 percent; 
                                and
                                  (III) for 2014, 98 percent.
                  (B) Significant hardship exception.--The 
                Secretary may, on a case-by-case basis, exempt 
                an eligible professional from the application 
                of the payment adjustment under subparagraph 
                (A) if the Secretary determines, subject to 
                annual renewal, that compliance with the 
                requirement for being a successful electronic 
                prescriber would result in a significant 
                hardship, such as in the case of an eligible 
                professional who practices in a rural area 
                without sufficient Internet access.
                  (C) Application.--
                          (i) Physician reporting system 
                        rules.--Paragraphs (5), (6), and (8) of 
                        subsection (k) shall apply for purposes 
                        of this paragraph in the same manner as 
                        they apply for purposes of such 
                        subsection.
                          (ii) Incentive payment validation 
                        rules.--Clauses (ii) and (iii) of 
                        subsection (m)(5)(D) shall apply for 
                        purposes of this paragraph in a similar 
                        manner as they apply for purposes of 
                        such subsection.
                  (D) Definitions.--For purposes of this 
                paragraph:
                          (i) Eligible professional; covered 
                        professional services.--The terms 
                        ``eligible professional'' and ``covered 
                        professional services'' have the 
                        meanings given such terms in subsection 
                        (k)(3).
                          (ii) Physician reporting system.--The 
                        term ``physician reporting system'' 
                        means the system established under 
                        subsection (k).
                          (iii) Reporting period.--The term 
                        ``reporting period'' means, with 
                        respect to a year, a period specified 
                        by the Secretary.
          (6) Special rule for teaching anesthesiologists.--
        With respect to physicians' services furnished on or 
        after January 1, 2010, in the case of teaching 
        anesthesiologists involved in the training of physician 
        residents in a single anesthesia case or two concurrent 
        anesthesia cases, the fee schedule amount to be applied 
        shall be 100 percent of the fee schedule amount 
        otherwise applicable under this section if the 
        anesthesia services were personally performed by the 
        teaching anesthesiologist alone and paragraph (4) shall 
        not apply if--
                  (A) the teaching anesthesiologist is present 
                during all critical or key portions of the 
                anesthesia service or procedure involved; and
                  (B) the teaching anesthesiologist (or another 
                anesthesiologist with whom the teaching 
                anesthesiologist has entered into an 
                arrangement) is immediately available to 
                furnish anesthesia services during the entire 
                procedure.
          (7) Incentives for meaningful use of certified ehr 
        technology.--
                  (A) Adjustment.--
                          (i) In general.--Subject to 
                        subparagraphs (B) and (D), with respect 
                        to covered professional services 
                        furnished by an eligible professional 
                        during each of 2015 through 2018, if 
                        the eligible professional is not a 
                        meaningful EHR user (as determined 
                        under subsection (o)(2)) for an EHR 
                        reporting period for the year, the fee 
                        schedule amount for such services 
                        furnished by such professional during 
                        the year (including the fee schedule 
                        amount for purposes of determining a 
                        payment based on such amount) shall be 
                        equal to the applicable percent of the 
                        fee schedule amount that would 
                        otherwise apply to such services under 
                        this subsection (determined after 
                        application of paragraph (3) but 
                        without regard to this paragraph).
                          (ii) Applicable percent.--Subject to 
                        clause (iii), for purposes of clause 
                        (i), the term ``applicable percent'' 
                        means--
                                  (I) for 2015, 99 percent (or, 
                                in the case of an eligible 
                                professional who was subject to 
                                the application of the payment 
                                adjustment under section 
                                1848(a)(5) for 2014, 98 
                                percent);
                                  (II) for 2016, 98 percent; 
                                and
                                  (III) for 2017 and 2018, 97 
                                percent.
                          (iii) Authority to decrease 
                        applicable percentage for 2018.--For 
                        2018, if the Secretary finds that the 
                        proportion of eligible professionals 
                        who are meaningful EHR users (as 
                        determined under subsection (o)(2)) is 
                        less than 75 percent, the applicable 
                        percent shall be decreased by 1 
                        percentage point from the applicable 
                        percent in the preceding year.
                  (B) Significant hardship exception.--The 
                Secretary may, on a case-by-case basis (and, 
                with respect to the payment adjustment under 
                subparagraph (A) for 2017, for categories of 
                eligible professionals, as established by the 
                Secretary and posted on the Internet website of 
                the Centers for Medicare & Medicaid Services 
                prior to December 15, 2015, an application for 
                which must be submitted to the Secretary by not 
                later than March 15, 2016), exempt an eligible 
                professional from the application of the 
                payment adjustment under subparagraph (A) if 
                the Secretary determines, subject to annual 
                renewal, that compliance with the requirement 
                for being a meaningful EHR user would result in 
                a significant hardship, such as in the case of 
                an eligible professional who practices in a 
                rural area without sufficient Internet access. 
                The Secretary shall exempt an eligible 
                professional from the application of the 
                payment adjustment under subparagraph (A) with 
                respect to a year, subject to annual renewal, 
                if the Secretary determines that compliance 
                with the requirement for being a meaningful EHR 
                user is not possible because the certified EHR 
                technology used by such professional has been 
                decertified under a program kept or recognized 
                pursuant to section 3001(c)(5) of the Public 
                Health Service Act. In no case may an eligible 
                professional be granted an exemption under this 
                subparagraph for more than 5 years.
                  (C) Application of physician reporting system 
                rules.--Paragraphs (5), (6), and (8) of 
                subsection (k) shall apply for purposes of this 
                paragraph in the same manner as they apply for 
                purposes of such subsection.
                  (D) Non-application to hospital-based and 
                ambulatory surgical center-based eligible 
                professionals.--
                          (i) Hospital-based.--No payment 
                        adjustment may be made under 
                        subparagraph (A) in the case of 
                        hospital-based eligible professionals 
                        (as defined in subsection 
                        (o)(1)(C)(ii)).
                          (ii) Ambulatory surgical center-
                        based.--Subject to clause (iv), no 
                        payment adjustment may be made under 
                        subparagraph (A) for 2017 and 2018 in 
                        the case of an eligible professional 
                        with respect to whom substantially all 
                        of the covered professional services 
                        furnished by such professional are 
                        furnished in an ambulatory surgical 
                        center.
                          (iii) Determination.--The 
                        determination of whether an eligible 
                        professional is an eligible 
                        professional described in clause (ii) 
                        may be made on the basis of--
                                  (I) the site of service (as 
                                defined by the Secretary); or
                                  (II) an attestation submitted 
                                by the eligible professional.
                        Determinations made under subclauses 
                        (I) and (II) shall be made without 
                        regard to any employment or billing 
                        arrangement between the eligible 
                        professional and any other supplier or 
                        provider of services.
                          (iv) Sunset.--Clause (ii) shall no 
                        longer apply as of the first year that 
                        begins more than 3 years after the date 
                        on which the Secretary determines, 
                        through notice and comment rulemaking, 
                        that certified EHR technology 
                        applicable to the ambulatory surgical 
                        center setting is available.
                  (E) Definitions.--For purposes of this 
                paragraph:
                          (i) Covered professional services.--
                        The term ``covered professional 
                        services'' has the meaning given such 
                        term in subsection (k)(3).
                          (ii) EHR reporting period.--The term 
                        ``EHR reporting period'' means, with 
                        respect to a year, a period (or 
                        periods) specified by the Secretary.
                          (iii) Eligible professional.--The 
                        term ``eligible professional'' means a 
                        physician, as defined in section 
                        1861(r).
          (8) Incentives for quality reporting.--
                  (A) Adjustment.--
                          (i) In general.--With respect to 
                        covered professional services furnished 
                        by an eligible professional during each 
                        of 2015 through 2018, if the eligible 
                        professional does not satisfactorily 
                        submit data on quality measures for 
                        covered professional services for the 
                        quality reporting period for the year 
                        (as determined under subsection 
                        (m)(3)(A)), the fee schedule amount for 
                        such services furnished by such 
                        professional during the year (including 
                        the fee schedule amount for purposes of 
                        determining a payment based on such 
                        amount) shall be equal to the 
                        applicable percent of the fee schedule 
                        amount that would otherwise apply to 
                        such services under this subsection 
                        (determined after application of 
                        paragraphs (3), (5), and (7), but 
                        without regard to this paragraph).
                          (ii) Applicable percent.--For 
                        purposes of clause (i), the term 
                        ``applicable percent'' means--
                                  (I) for 2015, 98.5 percent; 
                                and
                                  (II) for 2016, 2017, and 
                                2018, 98 percent.
                  (B) Application.--
                          (i) Physician reporting system 
                        rules.--Paragraphs (5), (6), and (8) of 
                        subsection (k) shall apply for purposes 
                        of this paragraph in the same manner as 
                        they apply for purposes of such 
                        subsection.
                          (ii) Incentive payment validation 
                        rules.--Clauses (ii) and (iii) of 
                        subsection (m)(5)(D) shall apply for 
                        purposes of this paragraph in a similar 
                        manner as they apply for purposes of 
                        such subsection.
                  (C) Definitions.--For purposes of this 
                paragraph:
                          (i) Eligible professional; covered 
                        professional services.--The terms 
                        ``eligible professional'' and ``covered 
                        professional services'' have the 
                        meanings given such terms in subsection 
                        (k)(3).
                          (ii) Physician reporting system.--The 
                        term ``physician reporting system'' 
                        means the system established under 
                        subsection (k).
                          (iii) Quality reporting period.--The 
                        term ``quality reporting period'' 
                        means, with respect to a year, a period 
                        specified by the Secretary.
          (9) Information reporting on services included in 
        global surgical packages.--With respect to services for 
        which a physician is required to report information in 
        accordance with subsection (c)(8)(B)(i), the Secretary 
        may through rulemaking delay payment of 5 percent of 
        the amount that would otherwise be payable under the 
        physician fee schedule under this section for such 
        services until the information so required is reported.
  (b) Establishment of Fee Schedules.--
          (1) In general.--Before November 1 of the preceding 
        year, for each year beginning with 1998, subject to 
        subsection (p), the Secretary shall establish, by 
        regulation, fee schedules that establish payment 
        amounts for all physicians' services furnished in all 
        fee schedule areas (as defined in subsection (j)(2)) 
        for the year. Except as provided in paragraph (2), each 
        such payment amount for a service shall be equal to the 
        product of--
                  (A) the relative value for the service (as 
                determined in subsection (c)(2)),
                  (B) the conversion factor (established under 
                subsection (d)) for the year, and
                  (C) the geographic adjustment factor 
                (established under subsection (e)(2)) for the 
                service for the fee schedule area.
          (2) Treatment of radiology services and anesthesia 
        services.--
                  (A) Radiology services.--With respect to 
                radiology services (including radiologist 
                services, as defined in section 1834(b)(6)), 
                the Secretary shall base the relative values on 
                the relative value scale developed under 
                section 1834(b)(1)(A), with appropriate 
                modifications of the relative values to assure 
                that the relative values established for 
                radiology services which are similar or related 
                to other physicians' services are consistent 
                with the relative values established for those 
                similar or related services.
                  (B) Anesthesia services.--In establishing the 
                fee schedule for anesthesia services for which 
                a relative value guide has been established 
                under section 4048(b) of the Omnibus Budget 
                Reconciliation Act of 1987, the Secretary shall 
                use, to the extent practicable, such relative 
                value guide, with appropriate adjustment of the 
                conversion factor, in a manner to assure that 
                the fee schedule amounts for anesthesia 
                services are consistent with the fee schedule 
                amounts for other services determined by the 
                Secretary to be of comparable value. In 
                applying the previous sentence, the Secretary 
                shall adjust the conversion factor by 
                geographic adjustment factors in the same 
                manner as such adjustment is made under 
                paragraph (1)(C).
                  (C) Consultation.--The Secretary shall 
                consult with the Physician Payment Review 
                Commission and organizations representing 
                physicians or suppliers who furnish radiology 
                services and anesthesia services in applying 
                subparagraphs (A) and (B).
          (3) Treatment of interpretation of 
        electrocardiograms.--The Secretary--
                  (A) shall make separate payment under this 
                section for the interpretation of 
                electrocardiograms performed or ordered to be 
                performed as part of or in conjunction with a 
                visit to or a consultation with a physician, 
                and
                  (B) shall adjust the relative values 
                established for visits and consultations under 
                subsection (c) so as not to include relative 
                value units for interpretations of 
                electrocardiograms in the relative value for 
                visits and consultations.
          (4) Special rule for imaging services.--
                  (A) In general.--In the case of imaging 
                services described in subparagraph (B) 
                furnished on or after January 1, 2007, if--
                          (i) the technical component 
                        (including the technical component 
                        portion of a global fee) of the service 
                        established for a year under the fee 
                        schedule described in paragraph (1) 
                        without application of the geographic 
                        adjustment factor described in 
                        paragraph (1)(C), exceeds
                          (ii) the Medicare OPD fee schedule 
                        amount established under the 
                        prospective payment system for hospital 
                        outpatient department services under 
                        paragraph (3)(D) of section 1833(t) for 
                        such service for such year, determined 
                        without regard to geographic adjustment 
                        under paragraph (2)(D) of such section,
                the Secretary shall substitute the amount 
                described in clause (ii), adjusted by the 
                geographic adjustment factor described in 
                paragraph (1)(C), for the fee schedule amount 
                for such technical component for such year.
                  (B) Imaging services described.--For purposes 
                of this paragraph, imaging services described 
                in this subparagraph are imaging and computer-
                assisted imaging services, including X-ray, 
                ultrasound (including echocardiography), 
                nuclear medicine (including positron emission 
                tomography), magnetic resonance imaging, 
                computed tomography, and fluoroscopy, but 
                excluding diagnostic and screening mammography, 
                and for 2010, 2011, and the first 2 months of 
                2012, dual-energy x-ray absorptiometry services 
                (as described in paragraph (6)).
                  (C) Adjustment in imaging utilization rate.--
                With respect to fee schedules established for 
                2011, 2012, and 2013, in the methodology for 
                determining practice expense relative value 
                units for expensive diagnostic imaging 
                equipment under the final rule published by the 
                Secretary in the Federal Register on November 
                25, 2009 (42 CFR 410 et al.), the Secretary 
                shall use a 75 percent assumption instead of 
                the utilization rates otherwise established in 
                such final rule. With respect to fee schedules 
                established for 2014 and subsequent years, in 
                such methodology, the Secretary shall use a 90 
                percent utilization rate.
                  (D) Adjustment in technical component 
                discount on single-session imaging involving 
                consecutive body parts.--For services furnished 
                on or after July 1, 2010, the Secretary shall 
                increase the reduction in payments attributable 
                to the multiple procedure payment reduction 
                applicable to the technical component for 
                imaging under the final rule published by the 
                Secretary in the Federal Register on November 
                21, 2005 (part 405 of title 42, Code of Federal 
                Regulations) from 25 percent to 50 percent.
          (5) Treatment of intensive cardiac rehabilitation 
        program.--
                  (A) In general.--In the case of an intensive 
                cardiac rehabilitation program described in 
                section 1861(eee)(4), the Secretary shall 
                substitute the Medicare OPD fee schedule amount 
                established under the prospective payment 
                system for hospital outpatient department 
                service under paragraph (3)(D) of section 
                1833(t) for cardiac rehabilitation (under HCPCS 
                codes 93797 and 93798 for calendar year 2007, 
                or any succeeding HCPCS codes for cardiac 
                rehabilitation).
                  (B) Definition of session.--Each of the 
                services described in subparagraphs (A) through 
                (E) of section 1861(eee)(3), when furnished for 
                one hour, is a separate session of intensive 
                cardiac rehabilitation.
                  (C) Multiple sessions per day.--Payment may 
                be made for up to 6 sessions per day of the 
                series of 72 one-hour sessions of intensive 
                cardiac rehabilitation services described in 
                section 1861(eee)(4)(B).
          (6) Treatment of bone mass scans.--For dual-energy x-
        ray absorptiometry services (identified in 2006 by 
        HCPCS codes 76075 and 76077 (and any succeeding codes)) 
        furnished during 2010, 2011, and the first 2 months of 
        2012, instead of the payment amount that would 
        otherwise be determined under this section for such 
        years, the payment amount shall be equal to 70 percent 
        of the product of--
                  (A) the relative value for the service (as 
                determined in subsection (c)(2)) for 2006;
                  (B) the conversion factor (established under 
                subsection (d)) for 2006; and
                  (C) the geographic adjustment factor 
                (established under subsection (e)(2)) for the 
                service for the fee schedule area for 2010, 
                2011, and the first 2 months of 2012, 
                respectively.
          (7) Adjustment in discount for certain multiple 
        therapy services.--In the case of therapy services 
        furnished on or after January 1, 2011, and before April 
        1, 2013, and for which payment is made under fee 
        schedules established under this section, instead of 
        the 25 percent multiple procedure payment reduction 
        specified in the final rule published by the Secretary 
        in the Federal Register on November 29, 2010, the 
        reduction percentage shall be 20 percent. In the case 
        of such services furnished on or after April 1, 2013, 
        and for which payment is made under such fee schedules, 
        instead of the 25 percent multiple procedure payment 
        reduction specified in such final rule, the reduction 
        percentage shall be 50 percent.
          (8) Encouraging care management for individuals with 
        chronic care needs.--
                  (A) In general.--In order to encourage the 
                management of care for individuals with chronic 
                care needs the Secretary shall, subject to 
                subparagraph (B), make payment (as the 
                Secretary determines to be appropriate) under 
                this section for chronic care management 
                services furnished on or after January 1, 2015, 
                by a physician (as defined in section 
                1861(r)(1)), physician assistant or nurse 
                practitioner (as defined in section 
                1861(aa)(5)(A)), clinical nurse specialist (as 
                defined in section 1861(aa)(5)(B)), or 
                certified nurse midwife (as defined in section 
                1861(gg)(2)).
                  (B) Policies relating to payment.--In 
                carrying out this paragraph, with respect to 
                chronic care management services, the Secretary 
                shall--
                          (i) make payment to only one 
                        applicable provider for such services 
                        furnished to an individual during a 
                        period;
                          (ii) not make payment under 
                        subparagraph (A) if such payment would 
                        be duplicative of payment that is 
                        otherwise made under this title for 
                        such services; and
                          (iii) not require that an annual 
                        wellness visit (as defined in section 
                        1861(hhh)) or an initial preventive 
                        physical examination (as defined in 
                        section 1861(ww)) be furnished as a 
                        condition of payment for such 
                        management services.
          (9) Special rule to incentivize transition from 
        traditional x-ray imaging to digital radiography.--
                  (A) Limitation on payment for film x-ray 
                imaging services.--In the case of an imaging 
                service (including the imaging portion of a 
                service) that is an X-ray taken using film and 
                that is furnished during 2017 or a subsequent 
                year, the payment amount for the technical 
                component (including the technical component 
                portion of a global service) of such service 
                that would otherwise be determined under this 
                section (without application of this paragraph 
                and before application of any other adjustment 
                under this section) for such year shall be 
                reduced by 20 percent.
                  (B) Phased-in limitation on payment for 
                computed radiography imaging services.--In the 
                case of an imaging service (including the 
                imaging portion of a service) that is an X-ray 
                taken using computed radiography technology--
                          (i) in the case of such a service 
                        furnished during 2018, 2019, 2020, 
                        2021, or 2022, the payment amount for 
                        the technical component (including the 
                        technical component portion of a global 
                        service) of such service that would 
                        otherwise be determined under this 
                        section (without application of this 
                        paragraph and before application of any 
                        other adjustment under this section) 
                        for such year shall be reduced by 7 
                        percent; and
                          (ii) in the case of such a service 
                        furnished during 2023 or a subsequent 
                        year, the payment amount for the 
                        technical component (including the 
                        technical component portion of a global 
                        service) of such service that would 
                        otherwise be determined under this 
                        section (without application of this 
                        paragraph and before application of any 
                        other adjustment under this section) 
                        for such year shall be reduced by 10 
                        percent.
                  (C) Computed radiography technology 
                defined.--For purposes of this paragraph, the 
                term ``computed radiography technology'' means 
                cassette-based imaging which utilizes an 
                imaging plate to create the image involved.
                  (D) Implementation.--In order to implement 
                this paragraph, the Secretary shall adopt 
                appropriate mechanisms which may include use of 
                modifiers.
          (10) Reduction of discount in payment for 
        professional component of multiple imaging services.--
        In the case of the professional component of imaging 
        services furnished on or after January 1, 2017, instead 
        of the 25 percent reduction for multiple procedures 
        specified in the final rule published by the Secretary 
        in the Federal Register on November 28, 2011, as 
        amended in the final rule published by the Secretary in 
        the Federal Register on November 16, 2012, the 
        reduction percentage shall be 5 percent.
          (11) Special rule for certain radiation therapy 
        services.--The code definitions, the work relative 
        value units under subsection (c)(2)(C)(i), and the 
        direct inputs for the practice expense relative value 
        units under subsection (c)(2)(C)(ii) for radiation 
        treatment delivery and related imaging services 
        (identified in 2016 by HCPCS G-codes G6001 through 
        G6015) for the fee schedule established under this 
        subsection for services furnished in 2017 and 2018 
        shall be the same as such definitions, units, and 
        inputs for such services for the fee schedule 
        established for services furnished in 2016.
  (c) Determination of Relative Values for Physicians' 
Services.--
          (1) Division of physicians' services into 
        components.--In this section, with respect to a 
        physicians' service:
                  (A) Work component defined.--The term ``work 
                component'' means the portion of the resources 
                used in furnishing the service that reflects 
                physician time and intensity in furnishing the 
                service. Such portion shall--
                          (i) include activities before and 
                        after direct patient contact, and
                          (ii) be defined, with respect to 
                        surgical procedures, to reflect a 
                        global definition including pre-
                        operative and post-operative 
                        physicians' services.
                  (B) Practice expense component defined.--The 
                term ``practice expense component'' means the 
                portion of the resources used in furnishing the 
                service that reflects the general categories of 
                expenses (such as office rent and wages of 
                personnel, but excluding malpractice expenses) 
                comprising practice expenses.
                  (C) Malpractice component defined.--The term 
                ``malpractice component'' means the portion of 
                the resources used in furnishing the service 
                that reflects malpractice expenses in 
                furnishing the service.
          (2) Determination of relative values.--
                  (A) In general.--
                          (i) Combination of units for 
                        components.--The Secretary shall 
                        develop a methodology for combining the 
                        work, practice expense, and malpractice 
                        relative value units, determined under 
                        subparagraph (C), for each service in a 
                        manner to produce a single relative 
                        value for that service. Such relative 
                        values are subject to adjustment under 
                        subparagraph (F)(i) and section 
                        13515(b) of the Omnibus Budget 
                        Reconciliation Act of 1993.
                          (ii) Extrapolation.--The Secretary 
                        may use extrapolation and other 
                        techniques to determine the number of 
                        relative value units for physicians' 
                        services for which specific data are 
                        not available and shall take into 
                        account recommendations of the 
                        Physician Payment Review Commission and 
                        the results of consultations with 
                        organizations representing physicians 
                        who provide such services.
                  (B) Periodic review and adjustments in 
                relative values.--
                          (i) Periodic review.--The Secretary, 
                        not less often than every 5 years, 
                        shall review the relative values 
                        established under this paragraph for 
                        all physicians' services.
                          (ii) Adjustments.--
                                  (I) In general.--The 
                                Secretary shall, to the extent 
                                the Secretary determines to be 
                                necessary and subject to 
                                subclause (II) and paragraph 
                                (7), adjust the number of such 
                                units to take into account 
                                changes in medical practice, 
                                coding changes, new data on 
                                relative value components, or 
                                the addition of new procedures. 
                                The Secretary shall publish an 
                                explanation of the basis for 
                                such adjustments.
                                  (II) Limitation on annual 
                                adjustments.--Subject to 
                                clauses (iv) and (v), the 
                                adjustments under subclause (I) 
                                for a year may not cause the 
                                amount of expenditures under 
                                this part for the year to 
                                differ by more than $20,000,000 
                                from the amount of expenditures 
                                under this part that would have 
                                been made if such adjustments 
                                had not been made.
                          (iii) Consultation.--The Secretary, 
                        in making adjustments under clause 
                        (ii), shall consult with the Medicare 
                        Payment Advisory Commission and 
                        organizations representing physicians.
                          (iv) Exemption of certain additional 
                        expenditures from budget neutrality.--
                        The additional expenditures 
                        attributable to--
                                  (I) subparagraph (H) shall 
                                not be taken into account in 
                                applying clause (ii)(II) for 
                                2004;
                                  (II) subparagraph (I) insofar 
                                as it relates to a physician 
                                fee schedule for 2005 or 2006 
                                shall not be taken into account 
                                in applying clause (ii)(II) for 
                                drug administration services 
                                under the fee schedule for such 
                                year for a specialty described 
                                in subparagraph (I)(ii)(II);
                                  (III) subparagraph (J) 
                                insofar as it relates to a 
                                physician fee schedule for 2005 
                                or 2006 shall not be taken into 
                                account in applying clause 
                                (ii)(II) for drug 
                                administration services under 
                                the fee schedule for such year; 
                                and
                                  (IV) subsection (b)(6) shall 
                                not be taken into account in 
                                applying clause (ii)(II) for 
                                2010, 2011, or the first 2 
                                months of 2012.
                          (v) Exemption of certain reduced 
                        expenditures from budget-neutrality 
                        calculation.--The following reduced 
                        expenditures, as estimated by the 
                        Secretary, shall not be taken into 
                        account in applying clause (ii)(II):
                                  (I) Reduced payment for 
                                multiple imaging procedures.--
                                Effective for fee schedules 
                                established beginning with 
                                2007, reduced expenditures 
                                attributable to the multiple 
                                procedure payment reduction for 
                                imaging under the final rule 
                                published by the Secretary in 
                                the Federal Register on 
                                November 21, 2005 (42 CFR 405, 
                                et al.) insofar as it relates 
                                to the physician fee schedules 
                                for 2006 and 2007.
                                  (II) OPD payment cap for 
                                imaging services.--Effective 
                                for fee schedules established 
                                beginning with 2007, reduced 
                                expenditures attributable to 
                                subsection (b)(4).
                                  (III) Change in utilization 
                                rate for certain imaging 
                                services.--Effective for fee 
                                schedules established beginning 
                                with 2011, reduced expenditures 
                                attributable to the changes in 
                                the utilization rate applicable 
                                to 2011 and 2014, as described 
                                in the first and second 
                                sentence, respectively, of 
                                subsection (b)(4)(C).
                                  (VI) Additional reduced 
                                payment for multiple imaging 
                                procedures.--Effective for fee 
                                schedules established beginning 
                                with 2010 (but not applied for 
                                services furnished prior to 
                                July 1, 2010), reduced 
                                expenditures attributable to 
                                the increase in the multiple 
                                procedure payment reduction 
                                from 25 to 50 percent (as 
                                described in subsection 
                                (b)(4)(D)).
                                  (VII) Reduced expenditures 
                                for multiple therapy 
                                services.--Effective for fee 
                                schedules established beginning 
                                with 2011, reduced expenditures 
                                attributable to the multiple 
                                procedure payment reduction for 
                                therapy services (as described 
                                in subsection (b)(7)).
                                  (VIII) Reduced expenditures 
                                attributable to application of 
                                quality incentives for computed 
                                tomography.--Effective for fee 
                                schedules established beginning 
                                with 2016, reduced expenditures 
                                attributable to the application 
                                of the quality incentives for 
                                computed tomography under 
                                section 1834(p)
                                  (IX) Reductions for misvalued 
                                services if target not met.--
                                Effective for fee schedules 
                                beginning with 2016, reduced 
                                expenditures attributable to 
                                the application of the target 
                                recapture amount described in 
                                subparagraph (O)(iii).
                                  (X) Reduced expenditures 
                                attributable to incentives to 
                                transition to digital 
                                radiography.--Effective for fee 
                                schedules established beginning 
                                with 2017, reduced expenditures 
                                attributable to subparagraph 
                                (A) of subsection (b)(9) and 
                                effective for fee schedules 
                                established beginning with 
                                2018, reduced expenditures 
                                attributable to subparagraph 
                                (B) of such subsection.
                                  (XI) Discount in payment for 
                                professional component of 
                                imaging services.--Effective 
                                for fee schedules established 
                                beginning with 2017, reduced 
                                expenditures attributable to 
                                subsection (b)(10).
                          (vi) Alternative application of 
                        budget-neutrality adjustment.--
                        Notwithstanding subsection (d)(9)(A), 
                        effective for fee schedules established 
                        beginning with 2009, with respect to 
                        the 5-year review of work relative 
                        value units used in fee schedules for 
                        2007 and 2008, in lieu of continuing to 
                        apply budget-neutrality adjustments 
                        required under clause (ii) for 2007 and 
                        2008 to work relative value units, the 
                        Secretary shall apply such budget-
                        neutrality adjustments to the 
                        conversion factor otherwise determined 
                        for years beginning with 2009.
                  (C) Computation of relative value units for 
                components.--For purposes of this section for 
                each physicians' service--
                          (i) Work relative value units.--The 
                        Secretary shall determine a number of 
                        work relative value units for the 
                        service or group of services based on 
                        the relative resources incorporating 
                        physician time and intensity required 
                        in furnishing the service or group of 
                        services.
                          (ii) Practice expense relative value 
                        units.--The Secretary shall determine a 
                        number of practice expense relative 
                        value units for the service for years 
                        before 1999 equal to the product of--
                                  (I) the base allowed charges 
                                (as defined in subparagraph 
                                (D)) for the service, and
                                  (II) the practice expense 
                                percentage for the service (as 
                                determined under paragraph 
                                (3)(C)(ii)),
                        and for years beginning with 1999 based 
                        on the relative practice expense 
                        resources involved in furnishing the 
                        service or group of services. For 1999, 
                        such number of units shall be 
                        determined based 75 percent on such 
                        product and based 25 percent on the 
                        relative practice expense resources 
                        involved in furnishing the service. For 
                        2000, such number of units shall be 
                        determined based 50 percent on such 
                        product and based 50 percent on such 
                        relative practice expense resources. 
                        For 2001, such number of units shall be 
                        determined based 25 percent on such 
                        product and based 75 percent on such 
                        relative practice expense resources. 
                        For a subsequent year, such number of 
                        units shall be determined based 
                        entirely on such relative practice 
                        expense resources.
                          (iii) Malpractice relative value 
                        units.--The Secretary shall determine a 
                        number of malpractice relative value 
                        units for the service or group of 
                        services for years before 2000 equal to 
                        the product of--
                                  (I) the base allowed charges 
                                (as defined in subparagraph 
                                (D)) for the service or group 
                                of services, and
                                  (II) the malpractice 
                                percentage for the service or 
                                group of services (as 
                                determined under paragraph 
                                (3)(C)(iii)),
                        and for years beginning with 2000 based 
                        on the malpractice expense resources 
                        involved in furnishing the service or 
                        group of services.
                  (D) Base allowed charges defined.--In this 
                paragraph, the term ``base allowed charges'' 
                means, with respect to a physician's service, 
                the national average allowed charges for the 
                service under this part for services furnished 
                during 1991, as estimated by the Secretary 
                using the most recent data available.
                  (E) Reduction in practice expense relative 
                value units for certain services.--
                          (i) In general.--Subject to clause 
                        (ii), the Secretary shall reduce the 
                        practice expense relative value units 
                        applied to services described in clause 
                        (iii) furnished in--
                                  (I) 1994, by 25 percent of 
                                the number by which the number 
                                of practice expense relative 
                                value units (determined for 
                                1994 without regard to this 
                                subparagraph) exceeds the 
                                number of work relative value 
                                units determined for 1994,
                                  (II) 1995, by an additional 
                                25 percent of such excess, and
                                  (III) 1996, by an additional 
                                25 percent of such excess.
                          (ii) Floor on reductions.--The 
                        practice expense relative value units 
                        for a physician's service shall not be 
                        reduced under this subparagraph to a 
                        number less than 128 percent of the 
                        number of work relative value units.
                          (iii) Services covered.--For purposes 
                        of clause (i), the services described 
                        in this clause are physicians' services 
                        that are not described in clause (iv) 
                        and for which--
                                  (I) there are work relative 
                                value units, and
                                  (II) the number of practice 
                                expense relative value units 
                                (determined for 1994) exceeds 
                                128 percent of the number of 
                                work relative value units 
                                (determined for such year).
                          (iv) Excluded services.--For purposes 
                        of clause (iii), the services described 
                        in this clause are services which the 
                        Secretary determines at least 75 
                        percent of which are provided under 
                        this title in an office setting.
                  (F) Budget neutrality adjustments.--The 
                Secretary--
                          (i) shall reduce the relative values 
                        for all services (other than anesthesia 
                        services) established under this 
                        paragraph (and in the case of 
                        anesthesia services, the conversion 
                        factor established by the Secretary for 
                        such services) by such percentage as 
                        the Secretary determines to be 
                        necessary so that, beginning in 1996, 
                        the amendment made by section 13514(a) 
                        of the Omnibus Budget Reconciliation 
                        Act of 1993 would not result in 
                        expenditures under this section that 
                        exceed the amount of such expenditures 
                        that would have been made if such 
                        amendment had not been made, and
                          (ii) shall reduce the amounts 
                        determined under subsection 
                        (a)(2)(B)(ii)(I) by such percentage as 
                        the Secretary determines to be required 
                        to assure that, taking into account the 
                        reductions made under clause (i), the 
                        amendment made by section 13514(a) of 
                        the Omnibus Budget Reconciliation Act 
                        of 1993 would not result in 
                        expenditures under this section in 1994 
                        that exceed the amount of such 
                        expenditures that would have been made 
                        if such amendment had not been made.
                  (G) Adjustments in relative value units for 
                1998.--
                          (i) In general.--The Secretary 
                        shall--
                                  (I) subject to clauses (iv) 
                                and (v), reduce the practice 
                                expense relative value units 
                                applied to any services 
                                described in clause (ii) 
                                furnished in 1998 to a number 
                                equal to 110 percent of the 
                                number of work relative value 
                                units, and
                                  (II) increase the practice 
                                expense relative value units 
                                for office visit procedure 
                                codes during 1998 by a uniform 
                                percentage which the Secretary 
                                estimates will result in an 
                                aggregate increase in payments 
                                for such services equal to the 
                                aggregate decrease in payments 
                                by reason of subclause (I).
                          (ii) Services covered.--For purposes 
                        of clause (i), the services described 
                        in this clause are physicians' services 
                        that are not described in clause (iii) 
                        and for which--
                                  (I) there are work relative 
                                value units, and
                                  (II) the number of practice 
                                expense relative value units 
                                (determined for 1998) exceeds 
                                110 percent of the number of 
                                work relative value units 
                                (determined for such year).
                          (iii) Excluded services.--For 
                        purposes of clause (ii), the services 
                        described in this clause are services 
                        which the Secretary determines at least 
                        75 percent of which are provided under 
                        this title in an office setting.
                          (iv) Limitation on aggregate 
                        reallocation.--If the application of 
                        clause (i)(I) would result in an 
                        aggregate amount of reductions under 
                        such clause in excess of $390,000,000, 
                        such clause shall be applied by 
                        substituting for 110 percent such 
                        greater percentage as the Secretary 
                        estimates will result in the aggregate 
                        amount of such reductions equaling 
                        $390,000,000.
                          (v) No reduction for certain 
                        services.--Practice expense relative 
                        value units for a procedure performed 
                        in an office or in a setting out of an 
                        office shall not be reduced under 
                        clause (i) if the in-office or out-of-
                        office practice expense relative value, 
                        respectively, for the procedure would 
                        increase under the proposed rule on 
                        resource-based practice expenses issued 
                        by the Secretary on June 18, 1997 (62 
                        Federal Register 33158 et seq.).
                  (H) Adjustments in practice expense relative 
                value units for certain drug administration 
                services beginning in 2004.--
                          (i) Use of survey data.--In 
                        establishing the physician fee schedule 
                        under subsection (b) with respect to 
                        payments for services furnished on or 
                        after January 1, 2004, the Secretary 
                        shall, in determining practice expense 
                        relative value units under this 
                        subsection, utilize a survey submitted 
                        to the Secretary as of January 1, 2003, 
                        by a physician specialty organization 
                        pursuant to section 212 of the 
                        Medicare, Medicaid, and SCHIP Balanced 
                        Budget Refinement Act of 1999 if the 
                        survey--
                                  (I) covers practice expenses 
                                for oncology drug 
                                administration services; and
                                  (II) meets criteria 
                                established by the Secretary 
                                for acceptance of such surveys.
                          (ii) Pricing of clinical oncology 
                        nurses in practice expense 
                        methodology.--If the survey described 
                        in clause (i) includes data on wages, 
                        salaries, and compensation of clinical 
                        oncology nurses, the Secretary shall 
                        utilize such data in the methodology 
                        for determining practice expense 
                        relative value units under subsection 
                        (c).
                          (iii) Work relative value units for 
                        certain drug administration services.--
                        In establishing the relative value 
                        units under this paragraph for drug 
                        administration services described in 
                        clause (iv) furnished on or after 
                        January 1, 2004, the Secretary shall 
                        establish work relative value units 
                        equal to the work relative value units 
                        for a level 1 office medical visit for 
                        an established patient.
                          (iv) Drug administration services 
                        described.--The drug administration 
                        services described in this clause are 
                        physicians' services--
                                  (I) which are classified as 
                                of October 1, 2003, within any 
                                of the following groups of 
                                procedures: therapeutic or 
                                diagnostic infusions (excluding 
                                chemotherapy); chemotherapy 
                                administration services; and 
                                therapeutic, prophylactic, or 
                                diagnostic injections;
                                  (II) for which there are no 
                                work relative value units 
                                assigned under this subsection 
                                as of such date; and
                                  (III) for which national 
                                relative value units have been 
                                assigned under this subsection 
                                as of such date.
                  (I) Adjustments in practice expense relative 
                value units for certain drug administration 
                services beginning with 2005.--
                          (i) In general.--In establishing the 
                        physician fee schedule under subsection 
                        (b) with respect to payments for 
                        services furnished on or after January 
                        1, 2005 or 2006, the Secretary shall 
                        adjust the practice expense relative 
                        value units for such year consistent 
                        with clause (ii).
                          (ii) Use of supplemental survey 
                        data.--
                                  (I) In general.--Subject to 
                                subclause (II), if a specialty 
                                submits to the Secretary by not 
                                later than March 1, 2004, for 
                                2005, or March 1, 2005, for 
                                2006, data that includes 
                                expenses for the administration 
                                of drugs and biologicals for 
                                which the payment amount is 
                                determined pursuant to section 
                                1842(o), the Secretary shall 
                                use such supplemental survey 
                                data in carrying out this 
                                subparagraph for the years 
                                involved insofar as they are 
                                collected and provided by 
                                entities and organizations 
                                consistent with the criteria 
                                established by the Secretary 
                                pursuant to section 212(a) of 
                                the Medicare, Medicaid, and 
                                SCHIP Balanced Budget 
                                Refinement Act of 1999.
                                  (II) Limitation on 
                                specialty.--Subclause (I) shall 
                                apply to a specialty only 
                                insofar as not less than 40 
                                percent of payments for the 
                                specialty under this title in 
                                2002 are attributable to the 
                                administration of drugs and 
                                biologicals, as determined by 
                                the Secretary.
                                  (III) Application.--This 
                                clause shall not apply with 
                                respect to a survey to which 
                                subparagraph (H)(i) applies.
                  (J) Provisions for appropriate reporting and 
                billing for physicians' services associated 
                with the administration of covered outpatient 
                drugs and biologicals.--
                          (i) Evaluation of codes.--The 
                        Secretary shall promptly evaluate 
                        existing drug administration codes for 
                        physicians' services to ensure accurate 
                        reporting and billing for such 
                        services, taking into account levels of 
                        complexity of the administration and 
                        resource consumption.
                          (ii) Use of existing processes.--In 
                        carrying out clause (i), the Secretary 
                        shall use existing processes for the 
                        consideration of coding changes and, to 
                        the extent coding changes are made, 
                        shall use such processes in 
                        establishing relative values for such 
                        services.
                          (iii) Implementation.--In carrying 
                        out clause (i), the Secretary shall 
                        consult with representatives of 
                        physician specialties affected by the 
                        implementation of section 1847A or 
                        section 1847B, and shall take such 
                        steps within the Secretary's authority 
                        to expedite such considerations under 
                        clause (ii).
                          (iv) Subsequent, budget neutral 
                        adjustments permitted.--Nothing in 
                        subparagraph (H) or (I) or this 
                        subparagraph shall be construed as 
                        preventing the Secretary from providing 
                        for adjustments in practice expense 
                        relative value units under (and 
                        consistent with) subparagraph (B) for 
                        years after 2004, 2005, or 2006, 
                        respectively.
                  (K) Potentially misvalued codes.--
                          (i) In general.--The Secretary 
                        shall--
                                  (I) periodically identify 
                                services as being potentially 
                                misvalued using criteria 
                                specified in clause (ii); and
                                  (II) review and make 
                                appropriate adjustments to the 
                                relative values established 
                                under this paragraph for 
                                services identified as being 
                                potentially misvalued under 
                                subclause (I).
                          (ii) Identification of potentially 
                        misvalued codes.--For purposes of 
                        identifying potentially misvalued codes 
                        pursuant to clause (i)(I), the 
                        Secretary shall examine codes (and 
                        families of codes as appropriate) based 
                        on any or all of the following 
                        criteria:
                                  (I) Codes that have 
                                experienced the fastest growth.
                                  (II) Codes that have 
                                experienced substantial changes 
                                in practice expenses.
                                  (III) Codes that describe new 
                                technologies or services within 
                                an appropriate time period 
                                (such as 3 years) after the 
                                relative values are initially 
                                established for such codes.
                                  (IV) Codes which are multiple 
                                codes that are frequently 
                                billed in conjunction with 
                                furnishing a single service.
                                  (V) Codes with low relative 
                                values, particularly those that 
                                are often billed multiple times 
                                for a single treatment.
                                  (VI) Codes that have not been 
                                subject to review since 
                                implementation of the fee 
                                schedule.
                                  (VII) Codes that account for 
                                the majority of spending under 
                                the physician fee schedule.
                                  (VIII) Codes for services 
                                that have experienced a 
                                substantial change in the 
                                hospital length of stay or 
                                procedure time.
                                  (IX) Codes for which there 
                                may be a change in the typical 
                                site of service since the code 
                                was last valued.
                                  (X) Codes for which there is 
                                a significant difference in 
                                payment for the same service 
                                between different sites of 
                                service.
                                  (XI) Codes for which there 
                                may be anomalies in relative 
                                values within a family of 
                                codes.
                                  (XII) Codes for services 
                                where there may be efficiencies 
                                when a service is furnished at 
                                the same time as other 
                                services.
                                  (XIII) Codes with high intra-
                                service work per unit of time.
                                  (XIV) Codes with high 
                                practice expense relative value 
                                units.
                                  (XV) Codes with high cost 
                                supplies.
                                  (XVI) Codes as determined 
                                appropriate by the Secretary.
                          (iii) Review and adjustments.--
                                  (I) The Secretary may use 
                                existing processes to receive 
                                recommendations on the review 
                                and appropriate adjustment of 
                                potentially misvalued services 
                                described in clause (i)(II).
                                  (II) The Secretary may 
                                conduct surveys, other data 
                                collection activities, studies, 
                                or other analyses as the 
                                Secretary determines to be 
                                appropriate to facilitate the 
                                review and appropriate 
                                adjustment described in clause 
                                (i)(II).
                                  (III) The Secretary may use 
                                analytic contractors to 
                                identify and analyze services 
                                identified under clause (i)(I), 
                                conduct surveys or collect 
                                data, and make recommendations 
                                on the review and appropriate 
                                adjustment of services 
                                described in clause (i)(II).
                                  (IV) The Secretary may 
                                coordinate the review and 
                                appropriate adjustment 
                                described in clause (i)(II) 
                                with the periodic review 
                                described in subparagraph (B).
                                  (V) As part of the review and 
                                adjustment described in clause 
                                (i)(II), including with respect 
                                to codes with low relative 
                                values described in clause 
                                (ii), the Secretary may make 
                                appropriate coding revisions 
                                (including using existing 
                                processes for consideration of 
                                coding changes) which may 
                                include consolidation of 
                                individual services into 
                                bundled codes for payment under 
                                the fee schedule under 
                                subsection (b).
                                  (VI) The provisions of 
                                subparagraph (B)(ii)(II) and 
                                paragraph (7) shall apply to 
                                adjustments to relative value 
                                units made pursuant to this 
                                subparagraph in the same manner 
                                as such provisions apply to 
                                adjustments under subparagraph 
                                (B)(ii)(I).
                          (iv) Treatment of certain radiation 
                        therapy services.--Radiation treatment 
                        delivery and related imaging services 
                        identified under subsection (b)(11) 
                        shall not be considered as potentially 
                        misvalued services for purposes of this 
                        subparagraph and subparagraph (O) for 
                        2017 and 2018.
                  (L) Validating relative value units.--
                          (i) In general.--The Secretary shall 
                        establish a process to validate 
                        relative value units under the fee 
                        schedule under subsection (b).
                          (ii) Components and elements of 
                        work.--The process described in clause 
                        (i) may include validation of work 
                        elements (such as time, mental effort 
                        and professional judgment, technical 
                        skill and physical effort, and stress 
                        due to risk) involved with furnishing a 
                        service and may include validation of 
                        the pre-, post-, and intra-service 
                        components of work.
                          (iii) Scope of codes.--The validation 
                        of work relative value units shall 
                        include a sampling of codes for 
                        services that is the same as the codes 
                        listed under subparagraph (K)(ii).
                          (iv) Methods.--The Secretary may 
                        conduct the validation under this 
                        subparagraph using methods described in 
                        subclauses (I) through (V) of 
                        subparagraph (K)(iii) as the Secretary 
                        determines to be appropriate.
                          (v) Adjustments.--The Secretary shall 
                        make appropriate adjustments to the 
                        work relative value units under the fee 
                        schedule under subsection (b). The 
                        provisions of subparagraph (B)(ii)(II) 
                        shall apply to adjustments to relative 
                        value units made pursuant to this 
                        subparagraph in the same manner as such 
                        provisions apply to adjustments under 
                        subparagraph (B)(ii)(II).
                  (M) Authority to collect and use information 
                on physicians' services in the determination of 
                relative values.--
                          (i) Collection of information.--
                        Notwithstanding any other provision of 
                        law, the Secretary may collect or 
                        obtain information on the resources 
                        directly or indirectly related to 
                        furnishing services for which payment 
                        is made under the fee schedule 
                        established under subsection (b). Such 
                        information may be collected or 
                        obtained from any eligible professional 
                        or any other source.
                          (ii) Use of information.--
                        Notwithstanding any other provision of 
                        law, subject to clause (v), the 
                        Secretary may (as the Secretary 
                        determines appropriate) use information 
                        collected or obtained pursuant to 
                        clause (i) in the determination of 
                        relative values for services under this 
                        section.
                          (iii) Types of information.--The 
                        types of information described in 
                        clauses (i) and (ii) may, at the 
                        Secretary's discretion, include any or 
                        all of the following:
                                  (I) Time involved in 
                                furnishing services.
                                  (II) Amounts and types of 
                                practice expense inputs 
                                involved with furnishing 
                                services.
                                  (III) Prices (net of any 
                                discounts) for practice expense 
                                inputs, which may include paid 
                                invoice prices or other 
                                documentation or records.
                                  (IV) Overhead and accounting 
                                information for practices of 
                                physicians and other suppliers.
                                  (V) Any other element that 
                                would improve the valuation of 
                                services under this section.
                          (iv) Information collection 
                        mechanisms.--Information may be 
                        collected or obtained pursuant to this 
                        subparagraph from any or all of the 
                        following:
                                  (I) Surveys of physicians, 
                                other suppliers, providers of 
                                services, manufacturers, and 
                                vendors.
                                  (II) Surgical logs, billing 
                                systems, or other practice or 
                                facility records.
                                  (III) Electronic health 
                                records.
                                  (IV) Any other mechanism 
                                determined appropriate by the 
                                Secretary.
                          (v) Transparency of use of 
                        information.--
                                  (I) In general.--Subject to 
                                subclauses (II) and (III), if 
                                the Secretary uses information 
                                collected or obtained under 
                                this subparagraph in the 
                                determination of relative 
                                values under this subsection, 
                                the Secretary shall disclose 
                                the information source and 
                                discuss the use of such 
                                information in such 
                                determination of relative 
                                values through notice and 
                                comment rulemaking.
                                  (II) Thresholds for use.--The 
                                Secretary may establish 
                                thresholds in order to use such 
                                information, including the 
                                exclusion of information 
                                collected or obtained from 
                                eligible professionals who use 
                                very high resources (as 
                                determined by the Secretary) in 
                                furnishing a service.
                                  (III) Disclosure of 
                                information.--The Secretary 
                                shall make aggregate 
                                information available under 
                                this subparagraph but shall not 
                                disclose information in a form 
                                or manner that identifies an 
                                eligible professional or a 
                                group practice, or information 
                                collected or obtained pursuant 
                                to a nondisclosure agreement.
                          (vi) Incentive to participate.--The 
                        Secretary may provide for such payments 
                        under this part to an eligible 
                        professional that submits such 
                        solicited information under this 
                        subparagraph as the Secretary 
                        determines appropriate in order to 
                        compensate such eligible professional 
                        for such submission. Such payments 
                        shall be provided in a form and manner 
                        specified by the Secretary.
                          (vii) Administration.--Chapter 35 of 
                        title 44, United States Code, shall not 
                        apply to information collected or 
                        obtained under this subparagraph.
                          (viii) Definition of eligible 
                        professional.--In this subparagraph, 
                        the term ``eligible professional'' has 
                        the meaning given such term in 
                        subsection (k)(3)(B).
                          (ix) Funding.--For purposes of 
                        carrying out this subparagraph, in 
                        addition to funds otherwise 
                        appropriated, the Secretary shall 
                        provide for the transfer, from the 
                        Federal Supplementary Medical Insurance 
                        Trust Fund under section 1841, of 
                        $2,000,000 to the Centers for Medicare 
                        & Medicaid Services Program Management 
                        Account for each fiscal year beginning 
                        with fiscal year 2014. Amounts 
                        transferred under the preceding 
                        sentence for a fiscal year shall be 
                        available until expended.
                  (N) Authority for alternative approaches to 
                establishing practice expense relative 
                values.--The Secretary may establish or adjust 
                practice expense relative values under this 
                subsection using cost, charge, or other data 
                from suppliers or providers of services, 
                including information collected or obtained 
                under subparagraph (M).
                  (O) Target for relative value adjustments for 
                misvalued services.--With respect to fee 
                schedules established for each of 2016 through 
                2018, the following shall apply:
                          (i) Determination of net reduction in 
                        expenditures.--For each year, the 
                        Secretary shall determine the estimated 
                        net reduction in expenditures under the 
                        fee schedule under this section with 
                        respect to the year as a result of 
                        adjustments to the relative values 
                        established under this paragraph for 
                        misvalued codes.
                          (ii) Budget neutral redistribution of 
                        funds if target met and counting 
                        overages towards the target for the 
                        succeeding year.--If the estimated net 
                        reduction in expenditures determined 
                        under clause (i) for the year is equal 
                        to or greater than the target for the 
                        year--
                                  (I) reduced expenditures 
                                attributable to such 
                                adjustments shall be 
                                redistributed for the year in a 
                                budget neutral manner in 
                                accordance with subparagraph 
                                (B)(ii)(II); and
                                  (II) the amount by which such 
                                reduced expenditures exceeds 
                                the target for the year shall 
                                be treated as a reduction in 
                                expenditures described in 
                                clause (i) for the succeeding 
                                year, for purposes of 
                                determining whether the target 
                                has or has not been met under 
                                this subparagraph with respect 
                                to that year.
                          (iii) Exemption from budget 
                        neutrality if target not met.--If the 
                        estimated net reduction in expenditures 
                        determined under clause (i) for the 
                        year is less than the target for the 
                        year, reduced expenditures in an amount 
                        equal to the target recapture amount 
                        shall not be taken into account in 
                        applying subparagraph (B)(ii)(II) with 
                        respect to fee schedules beginning with 
                        2016.
                          (iv) Target recapture amount.--For 
                        purposes of clause (iii), the target 
                        recapture amount is, with respect to a 
                        year, an amount equal to the difference 
                        between--
                                  (I) the target for the year; 
                                and
                                  (II) the estimated net 
                                reduction in expenditures 
                                determined under clause (i) for 
                                the year.
                          (v) Target.--For purposes of this 
                        subparagraph, with respect to a year, 
                        the target is calculated as 0.5 percent 
                        (or, for 2016, 1.0 percent) of the 
                        estimated amount of expenditures under 
                        the fee schedule under this section for 
                        the year.
          (3) Component percentages.--For purposes of paragraph 
        (2), the Secretary shall determine a work percentage, a 
        practice expense percentage, and a malpractice 
        percentage for each physician's service as follows:
                  (A) Division of services by specialty.--For 
                each physician's service or class of 
                physicians' services, the Secretary shall 
                determine the average percentage of each such 
                service or class of services that is performed, 
                nationwide, under this part by physicians in 
                each of the different physician specialties (as 
                identified by the Secretary).
                  (B) Division of specialty by component.--The 
                Secretary shall determine the average 
                percentage division of resources, among the 
                work component, the practice expense component, 
                and the malpractice component, used by 
                physicians in each of such specialties in 
                furnishing physicians' services. Such 
                percentages shall be based on national data 
                that describe the elements of physician 
                practice costs and revenues, by physician 
                specialty. The Secretary may use extrapolation 
                and other techniques to determine practice 
                costs and revenues for specialties for which 
                adequate data are not available.
                  (C) Determination of component percentages.--
                          (i) Work percentage.--The work 
                        percentage for a service (or class of 
                        services) is equal to the sum (for all 
                        physician specialties) of--
                                  (I) the average percentage 
                                division for the work component 
                                for each physician specialty 
                                (determined under subparagraph 
                                (B)), multiplied by
                                  (II) the proportion 
                                (determined under subparagraph 
                                (A)) of such service (or 
                                services) performed by 
                                physicians in that specialty.
                          (ii) Practice expense percentage.--
                        For years before 2002, the practice 
                        expense percentage for a service (or 
                        class of services) is equal to the sum 
                        (for all physician specialties) of--
                                  (I) the average percentage 
                                division for the practice 
                                expense component for each 
                                physician specialty (determined 
                                under subparagraph (B)), 
                                multiplied by
                                  (II) the proportion 
                                (determined under subparagraph 
                                (A)) of such service (or 
                                services) performed by 
                                physicians in that specialty.
                          (iii) Malpractice percentage.--For 
                        years before 1999, the malpractice 
                        percentage for a service (or class of 
                        services) is equal to the sum (for all 
                        physician specialties) of--
                                  (I) the average percentage 
                                division for the malpractice 
                                component for each physician 
                                specialty (determined under 
                                subparagraph (B)), multiplied 
                                by
                                  (II) the proportion 
                                (determined under subparagraph 
                                (A)) of such service (or 
                                services) performed by 
                                physicians in that specialty.
                  (D) Periodic recomputation.--The Secretary 
                may, from time to time, provide for the 
                recomputation of work percentages, practice 
                expense percentages, and malpractice 
                percentages determined under this paragraph.
          (4) Ancillary policies.--The Secretary may establish 
        ancillary policies (with respect to the use of 
        modifiers, local codes, and other matters) as may be 
        necessary to implement this section.
          (5) Coding.--The Secretary shall establish a uniform 
        procedure coding system for the coding of all 
        physicians' services. The Secretary shall provide for 
        an appropriate coding structure for visits and 
        consultations. The Secretary may incorporate the use of 
        time in the coding for visits and consultations. The 
        Secretary, in establishing such coding system, shall 
        consult with the Physician Payment Review Commission 
        and other organizations representing physicians.
          (6) No variation for specialists.--The Secretary may 
        not vary the conversion factor or the number of 
        relative value units for a physicians' service based on 
        whether the physician furnishing the service is a 
        specialist or based on the type of specialty of the 
        physician.
          (7) Phase-in of significant relative value unit (rvu) 
        reductions.--Effective for fee schedules established 
        beginning with 2016, for services that are not new or 
        revised codes, if the total relative value units for a 
        service for a year would otherwise be decreased by an 
        estimated amount equal to or greater than 20 percent as 
        compared to the total relative value units for the 
        previous year, the applicable adjustments in work, 
        practice expense, and malpractice relative value units 
        shall be phased-in over a 2-year period.
          (8) Global surgical packages.--
                  (A) Prohibition of implementation of rule 
                regarding global surgical packages.--
                          (i) In general.--The Secretary shall 
                        not implement the policy established in 
                        the final rule published on November 
                        13, 2014 (79 Fed. Reg. 67548 et seq.), 
                        that requires the transition of all 10-
                        day and 90-day global surgery packages 
                        to 0-day global periods.
                          (ii) Construction.--Nothing in clause 
                        (i) shall be construed to prevent the 
                        Secretary from revaluing misvalued 
                        codes for specific surgical services or 
                        assigning values to new or revised 
                        codes for surgical services.
                  (B) Collection of data on services included 
                in global surgical packages.--
                          (i) In general.--Subject to clause 
                        (ii), the Secretary shall through 
                        rulemaking develop and implement a 
                        process to gather, from a 
                        representative sample of physicians, 
                        beginning not later than January 1, 
                        2017, information needed to value 
                        surgical services. Such information 
                        shall include the number and level of 
                        medical visits furnished during the 
                        global period and other items and 
                        services related to the surgery and 
                        furnished during the global period, as 
                        appropriate. Such information shall be 
                        reported on claims at the end of the 
                        global period or in another manner 
                        specified by the Secretary. For 
                        purposes of carrying out this paragraph 
                        (other than clause (iii)), the 
                        Secretary shall transfer from the 
                        Federal Supplemental Medical Insurance 
                        Trust Fund under section 1841 
                        $2,000,000 to the Center for Medicare & 
                        Medicaid Services Program Management 
                        Account for fiscal year 2015. Amounts 
                        transferred under the previous sentence 
                        shall remain available until expended.
                          (ii) Reassessment and potential 
                        sunset.--Every 4 years, the Secretary 
                        shall reassess the value of the 
                        information collected pursuant to 
                        clause (i). Based on such a 
                        reassessment and by regulation, the 
                        Secretary may discontinue the 
                        requirement for collection of 
                        information under such clause if the 
                        Secretary determines that the Secretary 
                        has adequate information from other 
                        sources, such as qualified clinical 
                        data registries, surgical logs, billing 
                        systems or other practice or facility 
                        records, and electronic health records, 
                        in order to accurately value global 
                        surgical services under this section.
                          (iii) Inspector general audit.--The 
                        Inspector General of the Department of 
                        Health and Human Services shall audit a 
                        sample of the information reported 
                        under clause (i) to verify the accuracy 
                        of the information so reported.
                  (C) Improving accuracy of pricing for 
                surgical services.--For years beginning with 
                2019, the Secretary shall use the information 
                reported under subparagraph (B)(i) as 
                appropriate and other available data for the 
                purpose of improving the accuracy of valuation 
                of surgical services under the physician fee 
                schedule under this section.
  (d) Conversion Factors.--
          (1) Establishment.--
                  (A) In general.--The conversion factor for 
                each year shall be the conversion factor 
                established under this subsection for the 
                previous year (or, in the case of 1992, 
                specified in subparagraph (B)) adjusted by the 
                update (established under paragraph (3)) for 
                the year involved (for years before 2001) and, 
                for years beginning with 2001 and ending with 
                2025, multiplied by the update (established 
                under paragraph (4) or a subsequent paragraph) 
                for the year involved. There shall be two 
                separate conversion factors for each year 
                beginning with 2026, one for items and services 
                furnished by a qualifying APM participant (as 
                defined in section 1833(z)(2)) (referred to in 
                this subsection as the ``qualifying APM 
                conversion factor'') and the other for other 
                items and services (referred to in this 
                subsection as the ``nonqualifying APM 
                conversion factor''), equal to the respective 
                conversion factor for the previous year (or, in 
                the case of 2026, equal to the single 
                conversion factor for 2025) multiplied by the 
                update established under paragraph (20) for 
                such respective conversion factor for such 
                year.
                  (B) Special provision for 1992.--For purposes 
                of subparagraph (A), the conversion factor 
                specified in this subparagraph is a conversion 
                factor (determined by the Secretary) which, if 
                this section were to apply during 1991 using 
                such conversion factor, would result in the 
                same aggregate amount of payments under this 
                part for physicians' services as the estimated 
                aggregate amount of the payments under this 
                part for such services in 1991.
                  (C) Special rules for 1998.--Except as 
                provided in subparagraph (D), the single 
                conversion factor for 1998 under this 
                subsection shall be the conversion factor for 
                primary care services for 1997, increased by 
                the Secretary's estimate of the weighted 
                average of the three separate updates that 
                would otherwise occur were it not for the 
                enactment of chapter 1 of subtitle F of title 
                IV of the Balanced Budget Act of 1997.
                  (D) Special rules for anesthesia services.--
                The separate conversion factor for anesthesia 
                services for a year shall be equal to 46 
                percent of the single conversion factor (or, 
                beginning with 2026, applicable conversion 
                factor) established for other physicians' 
                services, except as adjusted for changes in 
                work, practice expense, or malpractice relative 
                value units.
                  (E) Publication and dissemination of 
                information.--The Secretary shall--
                          (i) cause to have published in the 
                        Federal Register not later than 
                        November 1 of each year (beginning with 
                        2000) the conversion factor which will 
                        apply to physicians' services for the 
                        succeeding year, the update determined 
                        under paragraph (4) for such succeeding 
                        year, and the allowed expenditures 
                        under such paragraph for such 
                        succeeding year; and
                          (ii) make available to the Medicare 
                        Payment Advisory Commission and the 
                        public by March 1 of each year 
                        (beginning with 2000) an estimate of 
                        the sustainable growth rate and of the 
                        conversion factor which will apply to 
                        physicians' services for the succeeding 
                        year and data used in making such 
                        estimate.
          (3) Update for 1999 and 2000.--
                  (A) In general.--Unless otherwise provided by 
                law, subject to subparagraph (D) and the 
                budget-neutrality factor determined by the 
                Secretary under subsection (c)(2)(B)(ii), the 
                update to the single conversion factor 
                established in paragraph (1)(C) for 1999 and 
                2000 is equal to the product of--
                          (i) 1 plus the Secretary's estimate 
                        of the percentage increase in the MEI 
                        (as defined in section 1842(i)(3)) for 
                        the year (divided by 100), and
                          (ii) 1 plus the Secretary's estimate 
                        of the update adjustment factor for the 
                        year (divided by 100),
                minus 1 and multiplied by 100.
                  (B) Update adjustment factor.--For purposes 
                of subparagraph (A)(ii), the ``update 
                adjustment factor'' for a year is equal (as 
                estimated by the Secretary) to--
                          (i) the difference between (I) the 
                        sum of the allowed expenditures for 
                        physicians' services (as determined 
                        under subparagraph (C)) for the period 
                        beginning April 1, 1997, and ending on 
                        March 31 of the year involved, and (II) 
                        the amount of actual expenditures for 
                        physicians' services furnished during 
                        the period beginning April 1, 1997, and 
                        ending on March 31 of the preceding 
                        year; divided by
                          (ii) the actual expenditures for 
                        physicians' services for the 12-month 
                        period ending on March 31 of the 
                        preceding year, increased by the 
                        sustainable growth rate under 
                        subsection (f) for the fiscal year 
                        which begins during such 12-month 
                        period.
                  (C) Determination of allowed expenditures.--
                For purposes of this paragraph and paragraph 
                (4), the allowed expenditures for physicians' 
                services for the 12-month period ending with 
                March 31 of--
                          (i) 1997 is equal to the actual 
                        expenditures for physicians' services 
                        furnished during such 12-month period, 
                        as estimated by the Secretary; or
                          (ii) a subsequent year is equal to 
                        the allowed expenditures for 
                        physicians' services for the previous 
                        year, increased by the sustainable 
                        growth rate under subsection (f) for 
                        the fiscal year which begins during 
                        such 12-month period.
                  (D) Restriction on variation from medicare 
                economic index.--Notwithstanding the amount of 
                the update adjustment factor determined under 
                subparagraph (B) for a year, the update in the 
                conversion factor under this paragraph for the 
                year may not be--
                          (i) greater than 100 times the 
                        following amount: (1.03 + (MEI 
                        percentage/100)) -1; or
                          (ii) less than 100 times the 
                        following amount: (0.93 + (MEI 
                        percentage/100)) -1,
                where ``MEI percentage'' means the Secretary's 
                estimate of the percentage increase in the MEI 
                (as defined in section 1842(i)(3)) for the year 
                involved.
          (4) Update for years beginning with 2001 and ending 
        with 2014.--
                  (A) In general.--Unless otherwise provided by 
                law, subject to the budget-neutrality factor 
                determined by the Secretary under subsection 
                (c)(2)(B)(ii) and subject to adjustment under 
                subparagraph (F), the update to the single 
                conversion factor established in paragraph 
                (1)(C) for a year beginning with 2001 and 
                ending with 2014 is equal to the product of--
                          (i) 1 plus the Secretary's estimate 
                        of the percentage increase in the MEI 
                        (as defined in section 1842(i)(3)) for 
                        the year (divided by 100); and
                          (ii) 1 plus the Secretary's estimate 
                        of the update adjustment factor under 
                        subparagraph (B) for the year.
                  (B) Update adjustment factor.--For purposes 
                of subparagraph (A)(ii), subject to 
                subparagraph (D) and the succeeding paragraphs 
                of this subsection, the ``update adjustment 
                factor'' for a year is equal (as estimated by 
                the Secretary) to the sum of the following:
                          (i) Prior year adjustment 
                        component.--An amount determined by--
                                  (I) computing the difference 
                                (which may be positive or 
                                negative) between the amount of 
                                the allowed expenditures for 
                                physicians' services for the 
                                prior year (as determined under 
                                subparagraph (C)) and the 
                                amount of the actual 
                                expenditures for such services 
                                for that year;
                                  (II) dividing that difference 
                                by the amount of the actual 
                                expenditures for such services 
                                for that year; and
                                  (III) multiplying that 
                                quotient by 0.75.
                          (ii) Cumulative adjustment 
                        component.--An amount determined by--
                                  (I) computing the difference 
                                (which may be positive or 
                                negative) between the amount of 
                                the allowed expenditures for 
                                physicians' services (as 
                                determined under subparagraph 
                                (C)) from April 1, 1996, 
                                through the end of the prior 
                                year and the amount of the 
                                actual expenditures for such 
                                services during that period;
                                  (II) dividing that difference 
                                by actual expenditures for such 
                                services for the prior year as 
                                increased by the sustainable 
                                growth rate under subsection 
                                (f) for the year for which the 
                                update adjustment factor is to 
                                be determined; and
                                  (III) multiplying that 
                                quotient by 0.33.
                  (C) Determination of allowed expenditures.--
                For purposes of this paragraph:
                          (i) Period up to april 1, 1999.--The 
                        allowed expenditures for physicians' 
                        services for a period before April 1, 
                        1999, shall be the amount of the 
                        allowed expenditures for such period as 
                        determined under paragraph (3)(C).
                          (ii) Transition to calendar year 
                        allowed expenditures.--Subject to 
                        subparagraph (E), the allowed 
                        expenditures for--
                                  (I) the 9-month period 
                                beginning April 1, 1999, shall 
                                be the Secretary's estimate of 
                                the amount of the allowed 
                                expenditures that would be 
                                permitted under paragraph 
                                (3)(C) for such period; and
                                  (II) the year of 1999, shall 
                                be the Secretary's estimate of 
                                the amount of the allowed 
                                expenditures that would be 
                                permitted under paragraph 
                                (3)(C) for such year.
                          (iii) Years beginning with 2000.--The 
                        allowed expenditures for a year 
                        (beginning with 2000) is equal to the 
                        allowed expenditures for physicians' 
                        services for the previous year, 
                        increased by the sustainable growth 
                        rate under subsection (f) for the year 
                        involved.
                  (D) Restriction on update adjustment 
                factor.--The update adjustment factor 
                determined under subparagraph (B) for a year 
                may not be less than -0.07 or greater than 
                0.03.
                  (E) Recalculation of allowed expenditures for 
                updates beginning with 2001.--For purposes of 
                determining the update adjustment factor for a 
                year beginning with 2001, the Secretary shall 
                recompute the allowed expenditures for previous 
                periods beginning on or after April 1, 1999, 
                consistent with subsection (f)(3).
                  (F) Transitional adjustment designed to 
                provide for budget neutrality.--Under this 
                subparagraph the Secretary shall provide for an 
                adjustment to the update under subparagraph 
                (A)--
                          (i) for each of 2001, 2002, 2003, and 
                        2004, of -0.2 percent; and
                          (ii) for 2005 of +0.8 percent.
          (5) Update for 2004 and 2005.--The update to the 
        single conversion factor established in paragraph 
        (1)(C) for each of 2004 and 2005 shall be not less than 
        1.5 percent.
          (6) Update for 2006.--The update to the single 
        conversion factor established in paragraph (1)(C) for 
        2006 shall be 0 percent.
          (7) Conversion factor for 2007.--
                  (A) In general.--The conversion factor that 
                would otherwise be applicable under this 
                subsection for 2007 shall be the amount of such 
                conversion factor divided by the product of--
                          (i) 1 plus the Secretary's estimate 
                        of the percentage increase in the MEI 
                        (as defined in section 1842(i)(3)) for 
                        2007 (divided by 100); and
                          (ii) 1 plus the Secretary's estimate 
                        of the update adjustment factor under 
                        paragraph (4)(B) for 2007.
                  (B) No effect on computation of conversion 
                factor for 2008.--The conversion factor under 
                this subsection shall be computed under 
                paragraph (1)(A) for 2008 as if subparagraph 
                (A) had never applied.
          (8) Update for 2008.--
                  (A) In general.--Subject to paragraph (7)(B), 
                in lieu of the update to the single conversion 
                factor established in paragraph (1)(C) that 
                would otherwise apply for 2008, the update to 
                the single conversion factor shall be 0.5 
                percent.
                  (B) No effect on computation of conversion 
                factor for 2009.--The conversion factor under 
                this subsection shall be computed under 
                paragraph (1)(A) for 2009 and subsequent years 
                as if subparagraph (A) had never applied.
          (9) Update for 2009.--
                  (A) In general.--Subject to paragraphs (7)(B) 
                and (8)(B), in lieu of the update to the single 
                conversion factor established in paragraph 
                (1)(C) that would otherwise apply for 2009, the 
                update to the single conversion factor shall be 
                1.1 percent.
                  (B) No effect on computation of conversion 
                factor for 2010 and subsequent years.--The 
                conversion factor under this subsection shall 
                be computed under paragraph (1)(A) for 2010 and 
                subsequent years as if subparagraph (A) had 
                never applied.
          (10) Update for January through may of 2010.--
                  (A) In general.--Subject to paragraphs 
                (7)(B), (8)(B), and (9)(B), in lieu of the 
                update to the single conversion factor 
                established in paragraph (1)(C) that would 
                otherwise apply for 2010 for the period 
                beginning on January 1, 2010, and ending on May 
                31, 2010, the update to the single conversion 
                factor shall be 0 percent for 2010.
                  (B) No effect on computation of conversion 
                factor for remaining portion of 2010 and 
                subsequent years.--The conversion factor under 
                this subsection shall be computed under 
                paragraph (1)(A) for the period beginning on 
                June 1, 2010, and ending on December 31, 2010, 
                and for 2011 and subsequent years as if 
                subparagraph (A) had never applied.
          (11) Update for june through december of 2010.--
                  (A) In general.--Subject to paragraphs 
                (7)(B), (8)(B), (9)(B), and (10)(B), in lieu of 
                the update to the single conversion factor 
                established in paragraph (1)(C) that would 
                otherwise apply for 2010 for the period 
                beginning on June 1, 2010, and ending on 
                December 31, 2010, the update to the single 
                conversion factor shall be 2.2 percent.
                  (B) No effect on computation of conversion 
                factor for 2011 and subsequent years.--The 
                conversion factor under this subsection shall 
                be computed under paragraph (1)(A) for 2011 and 
                subsequent years as if subparagraph (A) had 
                never applied.
          (12) Update for 2011.--
                  (A) In general.--Subject to paragraphs 
                (7)(B), (8)(B), (9)(B), (10)(B), and (11)(B), 
                in lieu of the update to the single conversion 
                factor established in paragraph (1)(C) that 
                would otherwise apply for 2011, the update to 
                the single conversion factor shall be 0 
                percent.
                  (B) No effect on computation of conversion 
                factor for 2012 and subsequent years.--The 
                conversion factor under this subsection shall 
                be computed under paragraph (1)(A) for 2012 and 
                subsequent years as if subparagraph (A) had 
                never applied.
          (13) Update for 2012.--
                  (A) In general.--Subject to paragraphs 
                (7)(B), (8)(B), (9)(B), (10)(B), (11)(B), and 
                (12)(B), in lieu of the update to the single 
                conversion factor established in paragraph 
                (1)(C) that would otherwise apply for 2012, the 
                update to the single conversion factor shall be 
                zero percent.
                  (B) No effect on computation of conversion 
                factor for 2013 and subsequent years.--The 
                conversion factor under this subsection shall 
                be computed under paragraph (1)(A) for 2013 and 
                subsequent years as if subparagraph (A) had 
                never applied.
          (14) Update for 2013.--
                  (A) In general.--Subject to paragraphs 
                (7)(B), (8)(B), (9)(B), (10)(B), (11)(B), 
                (12)(B), and (13)(B), in lieu of the update to 
                the single conversion factor established in 
                paragraph (1)(C) that would otherwise apply for 
                2013, the update to the single conversion 
                factor for such year shall be zero percent.
                  (B) No effect on computation of conversion 
                factor for 2014 and subsequent years.--The 
                conversion factor under this subsection shall 
                be computed under paragraph (1)(A) for 2014 and 
                subsequent years as if subparagraph (A) had 
                never applied.
          (15) Update for 2014.--
                  (A) In general.--Subject to paragraphs 
                (7)(B), (8)(B), (9)(B), (10)(B), (11)(B), 
                (12)(B), (13)(B), and (14)(B), in lieu of the 
                update to the single conversion factor 
                established in paragraph (1)(C) that would 
                otherwise apply for 2014, the update to the 
                single conversion factor shall be 0.5 percent.
                  (B) No effect on computation of conversion 
                factor for subsequent years.--The conversion 
                factor under this subsection shall be computed 
                under paragraph (1)(A) for 2015 and subsequent 
                years as if subparagraph (A) had never applied.
          (16) Update for january through june of 2015.--
        Subject to paragraphs (7)(B), (8)(B), (9)(B), (10)(B), 
        (11)(B), (12)(B), (13)(B), (14)(B), and (15)(B), in 
        lieu of the update to the single conversion factor 
        established in paragraph (1)(C) that would otherwise 
        apply for 2015 for the period beginning on January 1, 
        2015, and ending on June 30, 2015, the update to the 
        single conversion factor shall be 0.0 percent.
          (17) Update for july through december of 2015.--The 
        update to the single conversion factor established in 
        paragraph (1)(C) for the period beginning on July 1, 
        2015, and ending on December 31, 2015, shall be 0.5 
        percent.
          (18) Update for 2016 through 2019.--The update to the 
        single conversion factor established in paragraph 
        (1)(C) for 2016 and each subsequent year through 2019 
        shall be 0.5 percent.
          (19) Update for 2020 through 2025.--The update to the 
        single conversion factor established in paragraph 
        (1)(C) for 2020 and each subsequent year through 2025 
        shall be 0.0 percent.
          (20) Update for 2026 and subsequent years.--For 2026 
        and each subsequent year, the update to the qualifying 
        APM conversion factor established under paragraph 
        (1)(A) is 0.75 percent, and the update to the 
        nonqualifying APM conversion factor established under 
        such paragraph is 0.25 percent.
  (e) Geographic Adjustment Factors.--
          (1) Establishment of geographic indices.--
                  (A) In general.--Subject to subparagraphs 
                (B), (C), (E), (G), (H), and (I), the Secretary 
                shall establish--
                          (i) an index which reflects the 
                        relative costs of the mix of goods and 
                        services comprising practice expenses 
                        (other than malpractice expenses) in 
                        the different fee schedule areas 
                        compared to the national average of 
                        such costs,
                          (ii) an index which reflects the 
                        relative costs of malpractice expenses 
                        in the different fee schedule areas 
                        compared to the national average of 
                        such costs, and
                          (iii) an index which reflects \1/4\ 
                        of the difference between the relative 
                        value of physicians' work effort in 
                        each of the different fee schedule 
                        areas and the national average of such 
                        work effort.
                  (B) Class-specific geographic cost-of-
                practice indices.--The Secretary may establish 
                more than one index under subparagraph (A)(i) 
                in the case of classes of physicians' services, 
                if, because of differences in the mix of goods 
                and services comprising practice expenses for 
                the different classes of services, the 
                application of a single index under such clause 
                to different classes of such services would be 
                substantially inequitable.
                  (C) Periodic review and adjustments in 
                geographic adjustment factors.--The Secretary, 
                not less often than every 3 years, shall, in 
                consultation with appropriate representatives 
                of physicians, review the indices established 
                under subparagraph (A) and the geographic index 
                values applied under this subsection for all 
                fee schedule areas. Based on such review, the 
                Secretary may revise such index and adjust such 
                index values, except that, if more than 1 year 
                has elapsed since the date of the last previous 
                adjustment, the adjustment to be applied in the 
                first year of the next adjustment shall be \1/
                2\ of the adjustment that otherwise would be 
                made.
                  (D) Use of recent data.--In establishing 
                indices and index values under this paragraph, 
                the Secretary shall use the most recent data 
                available relating to practice expenses, 
                malpractice expenses, and physician work effort 
                in different fee schedule areas.
                  (E) Floor at 1.0 on work geographic index.--
                After calculating the work geographic index in 
                subparagraph (A)(iii), for purposes of payment 
                for services furnished on or after January 1, 
                2004, and before January 1, 2018, the Secretary 
                shall increase the work geographic index to 
                1.00 for any locality for which such work 
                geographic index is less than 1.00.
                  (G) Floor for practice expense, malpractice, 
                and work geographic indices for services 
                furnished in alaska.--For purposes of payment 
                for services furnished in Alaska on or after 
                January 1, 2004, and before January 1, 2006, 
                after calculating the practice expense, 
                malpractice, and work geographic indices in 
                clauses (i), (ii), and (iii) of subparagraph 
                (A) and in subparagraph (B), the Secretary 
                shall increase any such index to 1.67 if such 
                index would otherwise be less than 1.67. For 
                purposes of payment for services furnished in 
                the State described in the preceding sentence 
                on or after January 1, 2009, after calculating 
                the work geographic index in subparagraph 
                (A)(iii), the Secretary shall increase the work 
                geographic index to 1.5 if such index would 
                otherwise be less than 1.5
                  (H) Practice expense geographic adjustment 
                for 2010 and subsequent years.--
                          (i) For 2010.--Subject to clause 
                        (iii), for services furnished during 
                        2010, the employee wage and rent 
                        portions of the practice expense 
                        geographic index described in 
                        subparagraph (A)(i) shall reflect \1/2\ 
                        of the difference between the relative 
                        costs of employee wages and rents in 
                        each of the different fee schedule 
                        areas and the national average of such 
                        employee wages and rents.
                          (ii) For 2011.--Subject to clause 
                        (iii), for services furnished during 
                        2011, the employee wage and rent 
                        portions of the practice expense 
                        geographic index described in 
                        subparagraph (A)(i) shall reflect \1/2\ 
                        of the difference between the relative 
                        costs of employee wages and rents in 
                        each of the different fee schedule 
                        areas and the national average of such 
                        employee wages and rents.
                          (iii) Hold harmless.--The practice 
                        expense portion of the geographic 
                        adjustment factor applied in a fee 
                        schedule area for services furnished in 
                        2010 or 2011 shall not, as a result of 
                        the application of clause (i) or (ii), 
                        be reduced below the practice expense 
                        portion of the geographic adjustment 
                        factor under subparagraph (A)(i) (as 
                        calculated prior to the application of 
                        such clause (i) or (ii), respectively) 
                        for such area for such year.
                          (iv) Analysis.--The Secretary shall 
                        analyze current methods of establishing 
                        practice expense geographic adjustments 
                        under subparagraph (A)(i) and evaluate 
                        data that fairly and reliably 
                        establishes distinctions in the costs 
                        of operating a medical practice in the 
                        different fee schedule areas. Such 
                        analysis shall include an evaluation of 
                        the following:
                                  (I) The feasibility of using 
                                actual data or reliable survey 
                                data developed by medical 
                                organizations on the costs of 
                                operating a medical practice, 
                                including office rents and non-
                                physician staff wages, in 
                                different fee schedule areas.
                                  (II) The office expense 
                                portion of the practice expense 
                                geographic adjustment described 
                                in subparagraph (A)(i), 
                                including the extent to which 
                                types of office expenses are 
                                determined in local markets 
                                instead of national markets.
                                  (III) The weights assigned to 
                                each of the categories within 
                                the practice expense geographic 
                                adjustment described in 
                                subparagraph (A)(i).
                          (v) Revision for 2012 and subsequent 
                        years.--As a result of the analysis 
                        described in clause (iv), the Secretary 
                        shall, not later than January 1, 2012, 
                        make appropriate adjustments to the 
                        practice expense geographic adjustment 
                        described in subparagraph (A)(i) to 
                        ensure accurate geographic adjustments 
                        across fee schedule areas, including--
                                  (I) basing the office rents 
                                component and its weight on 
                                office expenses that vary among 
                                fee schedule areas; and
                                  (II) considering a 
                                representative range of 
                                professional and non-
                                professional personnel employed 
                                in a medical office based on 
                                the use of the American 
                                Community Survey data or other 
                                reliable data for wage 
                                adjustments.
                        Such adjustments shall be made without 
                        regard to adjustments made pursuant to 
                        clauses (i) and (ii) and shall be made 
                        in a budget neutral manner.
                  (I) Floor for practice expense index for 
                services furnished in frontier states.--
                          (i) In general.--Subject to clause 
                        (ii), for purposes of payment for 
                        services furnished in a frontier State 
                        (as defined in section 
                        1886(d)(3)(E)(iii)(II)) on or after 
                        January 1, 2011, after calculating the 
                        practice expense index in subparagraph 
                        (A)(i), the Secretary shall increase 
                        any such index to 1.00 if such index 
                        would otherwise be less that 1.00. The 
                        preceding sentence shall not be applied 
                        in a budget neutral manner.
                          (ii) Limitation.--This subparagraph 
                        shall not apply to services furnished 
                        in a State that receives a non-labor 
                        related share adjustment under section 
                        1886(d)(5)(H).
          (2) Computation of geographic adjustment factor.--For 
        purposes of subsection (b)(1)(C), for all physicians' 
        services for each fee schedule area the Secretary shall 
        establish a geographic adjustment factor equal to the 
        sum of the geographic cost-of-practice adjustment 
        factor (specified in paragraph (3)), the geographic 
        malpractice adjustment factor (specified in paragraph 
        (4)), and the geographic physician work adjustment 
        factor (specified in paragraph (5)) for the service and 
        the area.
          (3) Geographic cost-of-practice adjustment factor.--
        For purposes of paragraph (2), the ``geographic cost-
        of-practice adjustment factor'', for a service for a 
        fee schedule area, is the product of--
                  (A) the proportion of the total relative 
                value for the service that reflects the 
                relative value units for the practice expense 
                component, and
                  (B) the geographic cost-of-practice index 
                value for the area for the service, based on 
                the index established under paragraph (1)(A)(i) 
                or (1)(B) (as the case may be).
          (4) Geographic malpractice adjustment factor.--For 
        purposes of paragraph (2), the ``geographic malpractice 
        adjustment factor'', for a service for a fee schedule 
        area, is the product of--
                  (A) the proportion of the total relative 
                value for the service that reflects the 
                relative value units for the malpractice 
                component, and
                  (B) the geographic malpractice index value 
                for the area, based on the index established 
                under paragraph (1)(A)(ii).
          (5) Geographic physician work adjustment factor.--For 
        purposes of paragraph (2), the ``geographic physician 
        work adjustment factor'', for a service for a fee 
        schedule area, is the product of--
                  (A) the proportion of the total relative 
                value for the service that reflects the 
                relative value units for the work component, 
                and
                  (B) the geographic physician work index value 
                for the area, based on the index established 
                under paragraph (1)(A)(iii).
          (6) Use of msas as fee schedule areas in 
        california.--
                  (A) In general.--Subject to the succeeding 
                provisions of this paragraph and 
                notwithstanding the previous provisions of this 
                subsection, for services furnished on or after 
                January 1, 2017, the fee schedule areas used 
                for payment under this section applicable to 
                California shall be the following:
                          (i) Each Metropolitan Statistical 
                        Area (each in this paragraph referred 
                        to as an ``MSA''), as defined by the 
                        Director of the Office of Management 
                        and Budget as of December 31 of the 
                        previous year, shall be a fee schedule 
                        area.
                          (ii) All areas not included in an MSA 
                        shall be treated as a single rest-of-
                        State fee schedule area.
                  (B) Transition for msas previously in rest-
                of-state payment locality or in locality 3.--
                          (i) In general.--For services 
                        furnished in California during a year 
                        beginning with 2017 and ending with 
                        2021 in an MSA in a transition area (as 
                        defined in subparagraph (D)), subject 
                        to subparagraph (C), the geographic 
                        index values to be applied under this 
                        subsection for such year shall be equal 
                        to the sum of the following:
                                  (I) Current law component.--
                                The old weighting factor 
                                (described in clause (ii)) for 
                                such year multiplied by the 
                                geographic index values under 
                                this subsection for the fee 
                                schedule area that included 
                                such MSA that would have 
                                applied in such area (as 
                                estimated by the Secretary) if 
                                this paragraph did not apply.
                                  (II) MSA-based component.--
                                The MSA-based weighting factor 
                                (described in clause (iii)) for 
                                such year multiplied by the 
                                geographic index values 
                                computed for the fee schedule 
                                area under subparagraph (A) for 
                                the year (determined without 
                                regard to this subparagraph).
                          (ii) Old weighting factor.--The old 
                        weighting factor described in this 
                        clause--
                                  (I) for 2017, is \5/6\; and
                                  (II) for each succeeding 
                                year, is the old weighting 
                                factor described in this clause 
                                for the previous year minus \1/
                                6\.
                          (iii) MSA-based weighting factor.--
                        The MSA-based weighting factor 
                        described in this clause for a year is 
                        1 minus the old weighting factor under 
                        clause (ii) for that year.
                  (C) Hold harmless.--For services furnished in 
                a transition area in California during a year 
                beginning with 2017, the geographic index 
                values to be applied under this subsection for 
                such year shall not be less than the 
                corresponding geographic index values that 
                would have applied in such transition area (as 
                estimated by the Secretary) if this paragraph 
                did not apply.
                  (D) Transition area defined.--In this 
                paragraph, the term ``transition area'' means 
                each of the following fee schedule areas for 
                2013:
                          (i) The rest-of-State payment 
                        locality.
                          (ii) Payment locality 3.
                  (E) References to fee schedule areas.--
                Effective for services furnished on or after 
                January 1, 2017, for California, any reference 
                in this section to a fee schedule area shall be 
                deemed a reference to a fee schedule area 
                established in accordance with this paragraph.
  (f) Sustainable Growth Rate.--
          (1) Publication.--The Secretary shall cause to have 
        published in the Federal Register not later than--
                  (A) November 1, 2000, the sustainable growth 
                rate for 2000 and 2001; and
                  (B) November 1 of each succeeding year 
                through 2014 the sustainable growth rate for 
                such succeeding year and each of the preceding 
                2 years.
          (2) Specification of growth rate.--The sustainable 
        growth rate for all physicians' services for a fiscal 
        year (beginning with fiscal year 1998 and ending with 
        fiscal year 2000) and a year beginning with 2000 and 
        ending with 2014 shall be equal to the product of--
                  (A) 1 plus the Secretary's estimate of the 
                weighted average percentage increase (divided 
                by 100) in the fees for all physicians' 
                services in the applicable period involved,
                  (B) 1 plus the Secretary's estimate of the 
                percentage change (divided by 100) in the 
                average number of individuals enrolled under 
                this part (other than Medicare+Choice plan 
                enrollees) from the previous applicable period 
                to the applicable period involved,
                  (C) 1 plus the Secretary's estimate of the 
                annual average percentage growth in real gross 
                domestic product per capita (divided by 100) 
                during the 10-year period ending with the 
                applicable period involved, and
                  (D) 1 plus the Secretary's estimate of the 
                percentage change (divided by 100) in 
                expenditures for all physicians' services in 
                the applicable period (compared with the 
                previous applicable period) which will result 
                from changes in law and regulations, determined 
                without taking into account estimated changes 
                in expenditures resulting from the update 
                adjustment factor determined under subsection 
                (d)(3)(B) or (d)(4)(B), as the case may be,
        minus 1 and multiplied by 100.
          (3) Data to be used.--For purposes of determining the 
        update adjustment factor under subsection (d)(4)(B) for 
        a year beginning with 2001, the sustainable growth 
        rates taken into consideration in the determination 
        under paragraph (2) shall be determined as follows:
                  (A) For 2001.--For purposes of such 
                calculations for 2001, the sustainable growth 
                rates for fiscal year 2000 and the years 2000 
                and 2001 shall be determined on the basis of 
                the best data available to the Secretary as of 
                September 1, 2000.
                  (B) For 2002.--For purposes of such 
                calculations for 2002, the sustainable growth 
                rates for fiscal year 2000 and for years 2000, 
                2001, and 2002 shall be determined on the basis 
                of the best data available to the Secretary as 
                of September 1, 2001.
                  (C) For 2003 and succeeding years.--For 
                purposes of such calculations for a year after 
                2002--
                          (i) the sustainable growth rates for 
                        that year and the preceding 2 years 
                        shall be determined on the basis of the 
                        best data available to the Secretary as 
                        of September 1 of the year preceding 
                        the year for which the calculation is 
                        made; and
                          (ii) the sustainable growth rate for 
                        any year before a year described in 
                        clause (i) shall be the rate as most 
                        recently determined for that year under 
                        this subsection.
        Nothing in this paragraph shall be construed as 
        affecting the sustainable growth rates established for 
        fiscal year 1998 or fiscal year 1999.
          (4) Definitions.--In this subsection:
                  (A) Services included in physicians' 
                services.--The term ``physicians' services'' 
                includes other items and services (such as 
                clinical diagnostic laboratory tests and 
                radiology services), specified by the 
                Secretary, that are commonly performed or 
                furnished by a physician or in a physician's 
                office, but does not include services furnished 
                to a Medicare+Choice plan enrollee.
                  (B) Medicare+choice plan enrollee.--The term 
                ``Medicare+Choice plan enrollee'' means, with 
                respect to a fiscal year, an individual 
                enrolled under this part who has elected to 
                receive benefits under this title for the 
                fiscal year through a Medicare+Choice plan 
                offered under part C, and also includes an 
                individual who is receiving benefits under this 
                part through enrollment with an eligible 
                organization with a risk-sharing contract under 
                section 1876.
                  (C) Applicable period.--The term ``applicable 
                period'' means--
                          (i) a fiscal year, in the case of 
                        fiscal year 1998, fiscal year 1999, and 
                        fiscal year 2000; or
                          (ii) a calendar year with respect to 
                        a year beginning with 2000;
                as the case may be.
  (g) Limitation on Beneficiary Liability.--
          (1) Limitation on actual charges.--
                  (A) In general.--In the case of a 
                nonparticipating physician or nonparticipating 
                supplier or other person (as defined in section 
                1842(i)(2)) who does not accept payment on an 
                assignment-related basis for a physician's 
                service furnished with respect to an individual 
                enrolled under this part, the following rules 
                apply:
                          (i) Application of limiting charge.--
                        No person may bill or collect an actual 
                        charge for the service in excess of the 
                        limiting charge described in paragraph 
                        (2) for such service.
                          (ii) No liability for excess 
                        charges.--No person is liable for 
                        payment of any amounts billed for the 
                        service in excess of such limiting 
                        charge.
                          (iii) Correction of excess charges.--
                        If such a physician, supplier, or other 
                        person bills, but does not collect, an 
                        actual charge for a service in 
                        violation of clause (i), the physician, 
                        supplier, or other person shall reduce 
                        on a timely basis the actual charge 
                        billed for the service to an amount not 
                        to exceed the limiting charge for the 
                        service.
                          (iv) Refund of excess collections.--
                        If such a physician, supplier, or other 
                        person collects an actual charge for a 
                        service in violation of clause (i), the 
                        physician, supplier, or other person 
                        shall provide on a timely basis a 
                        refund to the individual charged in the 
                        amount by which the amount collected 
                        exceeded the limiting charge for the 
                        service. The amount of such a refund 
                        shall be reduced to the extent the 
                        individual has an outstanding balance 
                        owed by the individual to the 
                        physician.
                  (B) Sanctions.--If a physician, supplier, or 
                other person--
                          (i) knowingly and willfully bills or 
                        collects for services in violation of 
                        subparagraph (A)(i) on a repeated 
                        basis, or
                          (ii) fails to comply with clause 
                        (iii) or (iv) of subparagraph (A) on a 
                        timely basis,
                the Secretary may apply sanctions against the 
                physician, supplier, or other person in 
                accordance with paragraph (2) of section 
                1842(j). In applying this subparagraph, 
                paragraph (4) of such section applies in the 
                same manner as such paragraph applies to such 
                section and any reference in such section to a 
                physician is deemed also to include a reference 
                to a supplier or other person under this 
                subparagraph.
                  (C) Timely basis.--For purposes of this 
                paragraph, a correction of a bill for an excess 
                charge or refund of an amount with respect to a 
                violation of subparagraph (A)(i) in the case of 
                a service is considered to be provided ``on a 
                timely basis'', if the reduction or refund is 
                made not later than 30 days after the date the 
                physician, supplier, or other person is 
                notified by the carrier under this part of such 
                violation and of the requirements of 
                subparagraph (A).
          (2) Limiting charge defined.--
                  (A) For 1991.--For physicians' services of a 
                physician furnished during 1991, other than 
                radiologist services subject to section 
                1834(b), the ``limiting charge'' shall be the 
                same percentage (or, if less, 25 percent) above 
                the recognized payment amount under this part 
                with respect to the physician (as a 
                nonparticipating physician) as the percentage 
                by which--
                          (i) the maximum allowable actual 
                        charge (as determined under section 
                        1842(j)(1)(C) as of December 31, 1990, 
                        or, if less, the maximum actual charge 
                        otherwise permitted for the service 
                        under this part as of such date) for 
                        the service of the physician, exceeds
                          (ii) the recognized payment amount 
                        for the service of the physician (as a 
                        nonparticipating physician) as of such 
                        date.
In the case of evaluation and management services (as specified 
in section 1842(b)(16)(B)(ii)), the preceding sentence shall be 
applied by substituting ``40 percent'' for ``25 percent''.
          
                  (B) For 1992.--For physicians' services 
                furnished during 1992, other than radiologist 
                services subject to section 1834(b), the 
                ``limiting charge'' shall be the same 
                percentage (or, if less, 20 percent) above the 
                recognized payment amount under this part for 
                nonparticipating physicians as the percentage 
                by which--
                          (i) the limiting charge (as 
                        determined under subparagraph (A) as of 
                        December 31, 1991) for the service, 
                        exceeds
                          (ii) the recognized payment amount 
                        for the service for nonparticipating 
                        physicians as of such date.
                  (C) After 1992.--For physicians' services 
                furnished in a year after 1992, the ``limiting 
                charge'' shall be 115 percent of the recognized 
                payment amount under this part for 
                nonparticipating physicians or for 
                nonparticipating suppliers or other persons.
                  (D) Recognized payment amount.--In this 
                section, the term ``recognized payment amount'' 
                means, for services furnished on or after 
                January 1, 1992, the fee schedule amount 
                determined under subsection (a) (or, if payment 
                under this part is made on a basis other than 
                the fee schedule under this section, 95 percent 
                of the other payment basis), and, for services 
                furnished during 1991, the applicable 
                percentage (as defined in section 
                1842(b)(4)(A)(iv)) of the prevailing charge (or 
                fee schedule amount) for nonparticipating 
                physicians for that year.
          (3) Limitation on charges for medicare beneficiaries 
        eligible for medicaid benefits.--
                  (A) In general.--Payment for physicians' 
                services furnished on or after April 1, 1990, 
                to an individual who is enrolled under this 
                part and eligible for any medical assistance 
                (including as a qualified medicare beneficiary, 
                as defined in section 1905(p)(1)) with respect 
                to such services under a State plan approved 
                under title XIX may only be made on an 
                assignment-related basis and the provisions of 
                section 1902(n)(3)(A) apply to further limit 
                permissible charges under this section.
                  (B) Penalty.--A person may not bill for 
                physicians' services subject to subparagraph 
                (A) other than on an assignment-related basis. 
                No person is liable for payment of any amounts 
                billed for such a service in violation of the 
                previous sentence. If a person knowingly and 
                willfully bills for physicians' services in 
                violation of the first sentence, the Secretary 
                may apply sanctions against the person in 
                accordance with section 1842(j)(2).
          (4) Physician submission of claims.--
                  (A) In general.--For services furnished on or 
                after September 1, 1990, within 1 year after 
                the date of providing a service for which 
                payment is made under this part on a reasonable 
                charge or fee schedule basis, a physician, 
                supplier, or other person (or an employer or 
                facility in the cases described in section 
                1842(b)(6)(A))--
                          (i) shall complete and submit a claim 
                        for such service on a standard claim 
                        form specified by the Secretary to the 
                        carrier on behalf of a beneficiary, and
                          (ii) may not impose any charge 
                        relating to completing and submitting 
                        such a form.
                  (B) Penalty.--(i) With respect to an assigned 
                claim wherever a physician, provider, supplier 
                or other person (or an employer or facility in 
                the cases described in section 1842(b)(6)(A)) 
                fails to submit such a claim as required in 
                subparagraph (A), the Secretary shall reduce by 
                10 percent the amount that would otherwise be 
                paid for such claim under this part.
                  (ii) If a physician, supplier, or other 
                person (or an employer or facility in the cases 
                described in section 1842(b)(6)(A)) fails to 
                submit a claim required to be submitted under 
                subparagraph (A) or imposes a charge in 
                violation of such subparagraph, the Secretary 
                shall apply the sanction with respect to such a 
                violation in the same manner as a sanction may 
                be imposed under section 1842(p)(3) for a 
                violation of section 1842(p)(1).
          (5) Electronic billing; direct deposit.--The 
        Secretary shall encourage and develop a system 
        providing for expedited payment for claims submitted 
        electronically. The Secretary shall also encourage and 
        provide incentives allowing for direct deposit as 
        payments for services furnished by participating 
        physicians. The Secretary shall provide physicians with 
        such technical information as necessary to enable such 
        physicians to submit claims electronically. The 
        Secretary shall submit a plan to Congress on this 
        paragraph by May 1, 1990.
          (6) Monitoring of charges.--
                  (A) In general.--The Secretary shall 
                monitor--
                          (i) the actual charges of 
                        nonparticipating physicians for 
                        physicians' services furnished on or 
                        after January 1, 1991, to individuals 
                        enrolled under this part, and
                          (ii) changes (by specialty, type of 
                        service, and geographic area) in (I) 
                        the proportion of expenditures for 
                        physicians' services provided under 
                        this part by participating physicians, 
                        (II) the proportion of expenditures for 
                        such services for which payment is made 
                        under this part on an assignment-
                        related basis, and (III) the amounts 
                        charged above the recognized payment 
                        amounts under this part.
                  (B) Report.--The Secretary shall, by not 
                later than April 15 of each year (beginning in 
                1992), report to the Congress information on 
                the extent to which actual charges exceed 
                limiting charges, the number and types of 
                services involved, and the average amount of 
                excess charges and information regarding the 
                changes described in subparagraph (A)(ii).
                  (C) Plan.--If the Secretary finds that there 
                has been a significant decrease in the 
                proportions described in subclauses (I) and 
                (II) of subparagraph (A)(ii) or an increase in 
                the amounts described in subclause (III) of 
                that subparagraph, the Secretary shall develop 
                a plan to address such a problem and transmit 
                to Congress recommendations regarding the plan. 
                The Medicare Payment Advisory Commission shall 
                review the Secretary's plan and recommendations 
                and transmit to Congress its comments regarding 
                such plan and recommendations.
          (7) Monitoring of utilization and access.--
                  (A) In general.--The Secretary shall 
                monitor--
                          (i) changes in the utilization of and 
                        access to services furnished under this 
                        part within geographic, population, and 
                        service related categories,
                          (ii) possible sources of 
                        inappropriate utilization of services 
                        furnished under this part which 
                        contribute to the overall level of 
                        expenditures under this part, and
                          (iii) factors underlying these 
                        changes and their interrelationships.
                  (B) Report.--The Secretary shall by not later 
                than April 15, of each year (beginning with 
                1991) report to the Congress on the changes 
                described in subparagraph (A)(i) and shall 
                include in the report an examination of the 
                factors (including factors relating to 
                different services and specific categories and 
                groups of services and geographic and 
                demographic variations in utilization) which 
                may contribute to such changes.
                  (C) Recommendations.--The Secretary shall 
                include in each annual report under 
                subparagraph (B) recommendations--
                          (i) addressing any identified 
                        patterns of inappropriate utilization,
                          (ii) on utilization review,
                          (iii) on physician education or 
                        patient education,
                          (iv) addressing any problems of 
                        beneficiary access to care made evident 
                        by the monitoring process, and
                          (v) on such other matters as the 
                        Secretary deems appropriate.
                The Medicare Payment Advisory Commission shall 
                comment on the Secretary's recommendations and 
                in developing its comments, the Commission 
                shall convene and consult a panel of physician 
                experts to evaluate the implications of medical 
                utilization patterns for the quality of and 
                access to patient care.
  (h) Sending Information to Physicians.--Before the beginning 
of each year (beginning with 1992), the Secretary shall send to 
each physician or nonparticipating supplier or other person 
furnishing physicians' services (as defined in section 
1848(j)(3)) furnishing physicians' services under this part, 
for services commonly performed by the physician, supplier, or 
other person, information on fee schedule amounts that apply 
for the year in the fee schedule area for participating and 
non-participating physicians, and the maximum amount that may 
be charged consistent with subsection (g)(2). Such information 
shall be transmitted in conjunction with notices to physicians, 
suppliers, and other persons under section 1842(h) (relating to 
the participating physician program) for a year.
  (i) Miscellaneous Provisions.--
          (1) Restriction on administrative and judicial 
        review.--There shall be no administrative or judicial 
        review under section 1869 or otherwise of--
                  (A) the determination of the adjusted 
                historical payment basis (as defined in 
                subsection (a)(2)(D)(i)),
                  (B) the determination of relative values and 
                relative value units under subsection (c), 
                including adjustments under subsections 
                (c)(2)(F), (c)(2)(H), and (c)(2)(I) and section 
                13515(b) of the Omnibus Budget Reconciliation 
                Act of 1993,
                  (C) the determination of conversion factors 
                under subsection (d), including without 
                limitation a prospective redetermination of the 
                sustainable growth rates for any or all 
                previous fiscal years,
                  (D) the establishment of geographic 
                adjustment factors under subsection (e),
                  (E) the establishment of the system for the 
                coding of physicians' services under this 
                section, and
                  (F) the collection and use of information in 
                the determination of relative values under 
                subsection (c)(2)(M).
          (2) Assistants-at-surgery.--
                  (A) In general.--Subject to subparagraph (B), 
                in the case of a surgical service furnished by 
                a physician, if payment is made separately 
                under this part for the services of a physician 
                serving as an assistant-at-surgery, the fee 
                schedule amount shall not exceed 16 percent of 
                the fee schedule amount otherwise determined 
                under this section for the global surgical 
                service involved.
                  (B) Denial of payment in certain cases.--If 
                the Secretary determines, based on the most 
                recent data available, that for a surgical 
                procedure (or class of surgical procedures) the 
                national average percentage of such procedure 
                performed under this part which involve the use 
                of a physician as an assistant at surgery is 
                less than 5 percent, no payment may be made 
                under this part for services of an assistant at 
                surgery involved in the procedure.
          (3) No comparability adjustment.--For physicians' 
        services for which payment under this part is 
        determined under this section--
                  (A) a carrier may not make any adjustment in 
                the payment amount under section 1842(b)(3)(B) 
                on the basis that the payment amount is higher 
                than the charge applicable, for comparable 
                services and under comparable circumstances, to 
                the policyholders and subscribers of the 
                carrier,
                  (B) no payment adjustment may be made under 
                section 1842(b)(8), and
                  (C) section 1842(b)(9) shall not apply.
  (j) Definitions.--In this section:
          (1) Category.--For services furnished before January 
        1, 1998, the term ``category'' means, with respect to 
        physicians' services, surgical services (as defined by 
        the Secretary and including anesthesia services), 
        primary care services (as defined in section 
        1842(i)(4)), and all other physicians' services. The 
        Secretary shall define surgical services and publish 
        such definitions in the Federal Register no later than 
        May 1, 1990, after consultation with organizations 
        representing physicians.
          (2) Fee schedule area.--Except as provided in 
        subsection (e)(6)(D), the term ``fee schedule area'' 
        means a locality used under section 1842(b) for 
        purposes of computing payment amounts for physicians' 
        services.
          (3) Physicians' services.--The term ``physicians' 
        services'' includes items and services described in 
        paragraphs (1), (2)(A), (2)(D), (2)(G), (2)(P) (with 
        respect to services described in subparagraphs (A) and 
        (C) of section 1861(oo)(2)), (2)(R) (with respect to 
        services described in suparagraphs (B), (C), and (D) of 
        section 1861(pp)(1)), (2)(S), (2)(W), (2)(AA), (2)(DD), 
        (2)(EE), (2)(FF) (including administration of the 
        health risk assessment), (3), (4), (13), (14) (with 
        respect to services described in section 1861(nn)(2)), 
        and (15) of section 1861(s) (other than clinical 
        diagnostic laboratory tests and, except for purposes of 
        subsection (a)(3), (g), and (h) such other items and 
        services as the Secretary may specify).
          (4) Practice expenses.--The term ``practice 
        expenses'' includes all expenses for furnishing 
        physicians' services, excluding malpractice expenses, 
        physician compensation, and other physician fringe 
        benefits.
  (k) Quality Reporting System.--
          (1) In general.--The Secretary shall implement a 
        system for the reporting by eligible professionals of 
        data on quality measures specified under paragraph (2). 
        Such data shall be submitted in a form and manner 
        specified by the Secretary (by program instruction or 
        otherwise), which may include submission of such data 
        on claims under this part.
          (2) Use of consensus-based quality measures.--
                  (A) For 2007.--
                          (i) In general.--For purposes of 
                        applying this subsection for the 
                        reporting of data on quality measures 
                        for covered professional services 
                        furnished during the period beginning 
                        July 1, 2007, and ending December 31, 
                        2007, the quality measures specified 
                        under this paragraph are the measures 
                        identified as 2007 physician quality 
                        measures under the Physician Voluntary 
                        Reporting Program as published on the 
                        public website of the Centers for 
                        Medicare & Medicaid Services as of the 
                        date of the enactment of this 
                        subsection, except as may be changed by 
                        the Secretary based on the results of a 
                        consensus-based process in January of 
                        2007, if such change is published on 
                        such website by not later than April 1, 
                        2007.
                          (ii) Subsequent refinements in 
                        application permitted.--The Secretary 
                        may, from time to time (but not later 
                        than July 1, 2007), publish on such 
                        website (without notice or opportunity 
                        for public comment) modifications or 
                        refinements (such as code additions, 
                        corrections, or revisions) for the 
                        application of quality measures 
                        previously published under clause (i), 
                        but may not, under this clause, change 
                        the quality measures under the 
                        reporting system.
                          (iii) Implementation.--
                        Notwithstanding any other provision of 
                        law, the Secretary may implement by 
                        program instruction or otherwise this 
                        subsection for 2007.
                  (B) For 2008 and 2009.--
                          (i) In general.--For purposes of 
                        reporting data on quality measures for 
                        covered professional services furnished 
                        during 2008 and 2009, the quality 
                        measures specified under this paragraph 
                        for covered professional services shall 
                        be measures that have been adopted or 
                        endorsed by a consensus organization 
                        (such as the National Quality Forum or 
                        AQA), that include measures that have 
                        been submitted by a physician 
                        specialty, and that the Secretary 
                        identifies as having used a consensus-
                        based process for developing such 
                        measures. Such measures shall include 
                        structural measures, such as the use of 
                        electronic health records and 
                        electronic prescribing technology.
                          (ii) Proposed set of measures.--Not 
                        later than August 15 of each of 2007 
                        and 2008, the Secretary shall publish 
                        in the Federal Register a proposed set 
                        of quality measures that the Secretary 
                        determines are described in clause (i) 
                        and would be appropriate for eligible 
                        professionals to use to submit data to 
                        the Secretary in 2008 or 2009, as 
                        applicable. The Secretary shall provide 
                        for a period of public comment on such 
                        set of measures.
                          (iii) Final set of measures.--Not 
                        later than November 15 of each of 2007 
                        and 2008, the Secretary shall publish 
                        in the Federal Register a final set of 
                        quality measures that the Secretary 
                        determines are described in clause (i) 
                        and would be appropriate for eligible 
                        professionals to use to submit data to 
                        the Secretary in 2008 or 2009, as 
                        applicable.
                  (C) For 2010 and subsequent years.--
                          (i) In general.--Subject to clause 
                        (ii), for purposes of reporting data on 
                        quality measures for covered 
                        professional services furnished during 
                        2010 and each subsequent year, subject 
                        to subsection (m)(3)(C), the quality 
                        measures (including electronic 
                        prescribing quality measures) specified 
                        under this paragraph shall be such 
                        measures selected by the Secretary from 
                        measures that have been endorsed by the 
                        entity with a contract with the 
                        Secretary under section 1890(a).
                          (ii) Exception.--In the case of a 
                        specified area or medical topic 
                        determined appropriate by the Secretary 
                        for which a feasible and practical 
                        measure has not been endorsed by the 
                        entity with a contract under section 
                        1890(a), the Secretary may specify a 
                        measure that is not so endorsed as long 
                        as due consideration is given to 
                        measures that have been endorsed or 
                        adopted by a consensus organization 
                        identified by the Secretary, such as 
                        the AQA alliance.
                  (D) Opportunity to provide input on measures 
                for 2009 and subsequent years.--For each 
                quality measure (including an electronic 
                prescribing quality measure) adopted by the 
                Secretary under subparagraph (B) (with respect 
                to 2009) or subparagraph (C), the Secretary 
                shall ensure that eligible professionals have 
                the opportunity to provide input during the 
                development, endorsement, or selection of 
                measures applicable to services they furnish.
          (3) Covered professional services and eligible 
        professionals defined.--For purposes of this 
        subsection:
                  (A) Covered professional services.--The term 
                ``covered professional services'' means 
                services for which payment is made under, or is 
                based on, the fee schedule established under 
                this section and which are furnished by an 
                eligible professional.
                  (B) Eligible professional.--The term 
                ``eligible professional'' means any of the 
                following:
                          (i) A physician.
                          (ii) A practitioner described in 
                        section 1842(b)(18)(C).
                          (iii) A physical or occupational 
                        therapist or a qualified speech-
                        language pathologist.
                          (iv) Beginning with 2009, a qualified 
                        audiologist (as defined in section 
                        1861(ll)(3)(B)).
          (4) Use of registry-based reporting.--As part of the 
        publication of proposed and final quality measures for 
        2008 under clauses (ii) and (iii) of paragraph (2)(B), 
        the Secretary shall address a mechanism whereby an 
        eligible professional may provide data on quality 
        measures through an appropriate medical registry (such 
        as the Society of Thoracic Surgeons National Database) 
        or through a Maintenance of Certification program 
        operated by a specialty body of the American Board of 
        Medical Specialties that meets the criteria for such a 
        registry, as identified by the Secretary.
          (5) Identification units.--For purposes of applying 
        this subsection, the Secretary may identify eligible 
        professionals through billing units, which may include 
        the use of the Provider Identification Number, the 
        unique physician identification number (described in 
        section 1833(q)(1)), the taxpayer identification 
        number, or the National Provider Identifier. For 
        purposes of applying this subsection for 2007, the 
        Secretary shall use the taxpayer identification number 
        as the billing unit.
          (6) Education and outreach.--The Secretary shall 
        provide for education and outreach to eligible 
        professionals on the operation of this subsection.
          (7) Limitations on review.--There shall be no 
        administrative or judicial review under section 1869, 
        section 1878, or otherwise, of the development and 
        implementation of the reporting system under paragraph 
        (1), including identification of quality measures under 
        paragraph (2) and the application of paragraphs (4) and 
        (5).
          (8) Implementation.--The Secretary shall carry out 
        this subsection acting through the Administrator of the 
        Centers for Medicare & Medicaid Services.
          (9) Continued application for purposes of mips and 
        for certain professionals volunteering to report.--The 
        Secretary shall, in accordance with subsection 
        (q)(1)(F), carry out the provisions of this 
        subsection--
                  (A) for purposes of subsection (q); and
                  (B) for eligible professionals who are not 
                MIPS eligible professionals (as defined in 
                subsection (q)(1)(C)) for the year involved.
  (l) Physician Assistance and Quality Initiative Fund.--
          (1) Establishment.--The Secretary shall establish 
        under this subsection a Physician Assistance and 
        Quality Initiative Fund (in this subsection referred to 
        as the ``Fund'') which shall be available to the 
        Secretary for physician payment and quality improvement 
        initiatives, which may include application of an 
        adjustment to the update of the conversion factor under 
        subsection (d).
          (2) Funding.--
                  (A) Amount available.--
                          (i) In general.--Subject to clause 
                        (ii), there shall be available to the 
                        Fund the following amounts:
                                  (I) For expenditures during 
                                2008, an amount equal to 
                                $150,500,000.
                                  (II) For expenditures during 
                                2009, an amount equal to 
                                $24,500,000.
                          (ii) Limitations on expenditures.--
                                  (I) 2008.--The amount 
                                available for expenditures 
                                during 2008 shall be reduced as 
                                provided by subparagraph (A) of 
                                section 225(c)(1) and section 
                                524 of the Departments of 
                                Labor, Health and Human 
                                Services, and Education, and 
                                Related Agencies Appropriations 
                                Act, 2008 (division G of the 
                                Consolidated Appropriations 
                                Act, 2008).
                                  (II) 2009.--The amount 
                                available for expenditures 
                                during 2009 shall be reduced as 
                                provided by subparagraph (B) of 
                                such section 225(c)(1).
                  (B) Timely obligation of all available funds 
                for services.--The Secretary shall provide for 
                expenditures from the Fund in a manner designed 
                to provide (to the maximum extent feasible) for 
                the obligation of the entire amount available 
                for expenditures, after application of 
                subparagraph (A)(ii), during--
                          (i) 2008 for payment with respect to 
                        physicians' services furnished during 
                        2008; and
                          (ii) 2009 for payment with respect to 
                        physicians' services furnished during 
                        2009.
                  (C) Payment from trust fund.--The amount 
                specified in subparagraph (A) shall be 
                available to the Fund, as expenditures are made 
                from the Fund, from the Federal Supplementary 
                Medical Insurance Trust Fund under section 
                1841.
                  (D) Funding limitation.--Amounts in the Fund 
                shall be available in advance of appropriations 
                in accordance with subparagraph (B) but only if 
                the total amount obligated from the Fund does 
                not exceed the amount available to the Fund 
                under subparagraph (A). The Secretary may 
                obligate funds from the Fund only if the 
                Secretary determines (and the Chief Actuary of 
                the Centers for Medicare & Medicaid Services 
                and the appropriate budget officer certify) 
                that there are available in the Fund sufficient 
                amounts to cover all such obligations incurred 
                consistent with the previous sentence.
                  (E) Construction.--In the case that 
                expenditures from the Fund are applied to, or 
                otherwise affect, a conversion factor under 
                subsection (d) for a year, the conversion 
                factor under such subsection shall be computed 
                for a subsequent year as if such application or 
                effect had never occurred.
  (m) Incentive Payments for Quality Reporting.--
          (1) Incentive payments.--
                  (A) In general.--For 2007 through 2014, with 
                respect to covered professional services 
                furnished during a reporting period by an 
                eligible professional, if--
                          (i) there are any quality measures 
                        that have been established under the 
                        physician reporting system that are 
                        applicable to any such services 
                        furnished by such professional for such 
                        reporting period;
                          (ii) the eligible professional 
                        satisfactorily submits (as determined 
                        under this subsection) to the Secretary 
                        data on such quality measures in 
                        accordance with such reporting system 
                        for such reporting period,
                in addition to the amount otherwise paid under 
                this part, there also shall be paid to the 
                eligible professional (or to an employer or 
                facility in the cases described in clause (A) 
                of section 1842(b)(6)) or, in the case of a 
                group practice under paragraph (3)(C), to the 
                group practice, from the Federal Supplementary 
                Medical Insurance Trust Fund established under 
                section 1841 an amount equal to the applicable 
                quality percent of the Secretary's estimate 
                (based on claims submitted not later than 2 
                months after the end of the reporting period) 
                of the allowed charges under this part for all 
                such covered professional services furnished by 
                the eligible professional (or, in the case of a 
                group practice under paragraph (3)(C), by the 
                group practice) during the reporting period.
                  (B) Applicable quality percent.--For purposes 
                of subparagraph (A), the term ``applicable 
                quality percent'' means--
                          (i) for 2007 and 2008, 1.5 percent; 
                        and
                          (ii) for 2009 and 2010, 2.0 percent;
                          (iii) for 2011, 1.0 percent; and
                          (iv) for 2012, 2013, and 2014, 0.5 
                        percent.
          (2) Incentive payments for electronic prescribing.--
                  (A) In general.--Subject to subparagraph (D), 
                for 2009 through 2013, with respect to covered 
                professional services furnished during a 
                reporting period by an eligible professional, 
                if the eligible professional is a successful 
                electronic prescriber for such reporting 
                period, in addition to the amount otherwise 
                paid under this part, there also shall be paid 
                to the eligible professional (or to an employer 
                or facility in the cases described in clause 
                (A) of section 1842(b)(6)) or, in the case of a 
                group practice under paragraph (3)(C), to the 
                group practice, from the Federal Supplementary 
                Medical Insurance Trust Fund established under 
                section 1841 an amount equal to the applicable 
                electronic prescribing percent of the 
                Secretary's estimate (based on claims submitted 
                not later than 2 months after the end of the 
                reporting period) of the allowed charges under 
                this part for all such covered professional 
                services furnished by the eligible professional 
                (or, in the case of a group practice under 
                paragraph (3)(C), by the group practice) during 
                the reporting period.
                  (B) Limitation with respect to electronic 
                prescribing quality measures.--The provisions 
                of this paragraph and subsection (a)(5) shall 
                not apply to an eligible professional (or, in 
                the case of a group practice under paragraph 
                (3)(C), to the group practice) if, for the 
                reporting period (or, for purposes of 
                subsection (a)(5), for the reporting period for 
                a year)--
                          (i) the allowed charges under this 
                        part for all covered professional 
                        services furnished by the eligible 
                        professional (or group, as applicable) 
                        for the codes to which the electronic 
                        prescribing quality measure applies (as 
                        identified by the Secretary and 
                        published on the Internet website of 
                        the Centers for Medicare & Medicaid 
                        Services as of January 1, 2008, and as 
                        subsequently modified by the Secretary) 
                        are less than 10 percent of the total 
                        of the allowed charges under this part 
                        for all such covered professional 
                        services furnished by the eligible 
                        professional (or the group, as 
                        applicable); or
                          (ii) if determined appropriate by the 
                        Secretary, the eligible professional 
                        does not submit (including both 
                        electronically and nonelectronically) a 
                        sufficient number (as determined by the 
                        Secretary) of prescriptions under part 
                        D.
                If the Secretary makes the determination to 
                apply clause (ii) for a period, then clause (i) 
                shall not apply for such period.
                  (C) Applicable electronic prescribing 
                percent.--For purposes of subparagraph (A), the 
                term ``applicable electronic prescribing 
                percent'' means--
                          (i) for 2009 and 2010, 2.0 percent;
                          (ii) for 2011 and 2012, 1.0 percent; 
                        and
                          (iii) for 2013, 0.5 percent.
                  (D) Limitation with respect to ehr incentive 
                payments.--The provisions of this paragraph 
                shall not apply to an eligible professional 
                (or, in the case of a group practice under 
                paragraph (3)(C), to the group practice) if, 
                for the EHR reporting period the eligible 
                professional (or group practice) receives an 
                incentive payment under subsection (o)(1)(A) 
                with respect to a certified EHR technology (as 
                defined in subsection (o)(4)) that has the 
                capability of electronic prescribing.
          (3) Satisfactory reporting and successful electronic 
        prescriber and described.--
                  (A) In general.--For purposes of paragraph 
                (1), an eligible professional shall be treated 
                as satisfactorily submitting data on quality 
                measures for covered professional services for 
                a reporting period (or, for purposes of 
                subsection (a)(8), for the quality reporting 
                period for the year) if quality measures have 
                been reported as follows:
                          (i) Three or fewer quality measures 
                        applicable.--If there are no more than 
                        3 quality measures that are provided 
                        under the physician reporting system 
                        and that are applicable to such 
                        services of such professional furnished 
                        during the period, each such quality 
                        measure has been reported under such 
                        system in at least 80 percent of the 
                        cases in which such measure is 
                        reportable under the system.
                          (ii) Four or more quality measures 
                        applicable.--If there are 4 or more 
                        quality measures that are provided 
                        under the physician reporting system 
                        and that are applicable to such 
                        services of such professional 
                        furnishedduring the period, at least 3 
                        such quality measures have been 
                        reported under such system in at least 
                        80 percent of the cases in which the 
                        respective measure is reportable under 
                        the system.
                For years after 2008, quality measures for 
                purposes of this subparagraph shall not include 
                electronic prescribing quality measures.
                  (B) Successful electronic prescriber.--
                          (i) In general.--For purposes of 
                        paragraph (2) and subsection (a)(5), an 
                        eligible professional shall be treated 
                        as a successful electronic prescriber 
                        for a reporting period (or, for 
                        purposes of subsection (a)(5), for the 
                        reporting period for a year) if the 
                        eligible professional meets the 
                        requirement described in clause (ii), 
                        or, if the Secretary determines 
                        appropriate, the requirement described 
                        in clause (iii). If the Secretary makes 
                        the determination under the preceding 
                        sentence to apply the requirement 
                        described in clause (iii) for a period, 
                        then the requirement described in 
                        clause (ii) shall not apply for such 
                        period.
                          (ii) Requirement for submitting data 
                        on electronic prescribing quality 
                        measures.--The requirement described in 
                        this clause is that, with respect to 
                        covered professional services furnished 
                        by an eligible professional during a 
                        reporting period (or, for purposes of 
                        subsection (a)(5), for the reporting 
                        period for a year), if there are any 
                        electronic prescribing quality measures 
                        that have been established under the 
                        physician reporting system and are 
                        applicable to any such services 
                        furnished by such professional for the 
                        period, such professional reported each 
                        such measure under such system in at 
                        least 50 percent of the cases in which 
                        such measure is reportable by such 
                        professional under such system.
                          (iii) Requirement for electronically 
                        prescribing under part d.--The 
                        requirement described in this clause is 
                        that the eligible professional 
                        electronically submitted a sufficient 
                        number (as determined by the Secretary) 
                        of prescriptions under part D during 
                        the reporting period (or, for purposes 
                        of subsection (a)(5), for the reporting 
                        period for a year).
                          (iv) Use of part d data.--
                        Notwithstanding sections 1860D-
                        15(d)(2)(B) and 1860D-15(f)(2), the 
                        Secretary may use data regarding drug 
                        claims submitted for purposes of 
                        section 1860D-15 that are necessary for 
                        purposes of clause (iii), paragraph 
                        (2)(B)(ii), and paragraph (5)(G).
                          (v) Standards for electronic 
                        prescribing.--To the extent 
                        practicable, in determining whether 
                        eligible professionals meet the 
                        requirements under clauses (ii) and 
                        (iii) for purposes of clause (i), the 
                        Secretary shall ensure that eligible 
                        professionals utilize electronic 
                        prescribing systems in compliance with 
                        standards established for such systems 
                        pursuant to the Part D Electronic 
                        Prescribing Program under section 
                        1860D-4(e).
                  (C) Satisfactory reporting measures for group 
                practices.--
                          (i) In general.--By January 1, 2010, 
                        the Secretary shall establish and have 
                        in place a process under which eligible 
                        professionals in a group practice (as 
                        defined by the Secretary) shall be 
                        treated as satisfactorily submitting 
                        data on quality measures under 
                        subparagraph (A) and as meeting the 
                        requirement described in subparagraph 
                        (B)(ii) for covered professional 
                        services for a reporting period (or, 
                        for purposes of subsection (a)(5), for 
                        a reporting period for a year, or, for 
                        purposes of subsection (a)(8), for a 
                        quality reporting period for the year) 
                        if, in lieu of reporting measures under 
                        subsection (k)(2)(C), the group 
                        practice reports measures determined 
                        appropriate by the Secretary, such as 
                        measures that target high-cost chronic 
                        conditions and preventive care, in a 
                        form and manner, and at a time, 
                        specified by the Secretary.
                          (ii) Statistical sampling model.--The 
                        process under clause (i) shall provide 
                        and, for 2016 and subsequent years, may 
                        provide for the use of a statistical 
                        sampling model to submit data on 
                        measures, such as the model used under 
                        the Physician Group Practice 
                        demonstration project under section 
                        1866A.
                          (iii) No double payments.--Payments 
                        to a group practice under this 
                        subsection by reason of the process 
                        under clause (i) shall be in lieu of 
                        the payments that would otherwise be 
                        made under this subsection to eligible 
                        professionals in the group practice for 
                        satisfactorily submitting data on 
                        quality measures.
                  (D) Satisfactory reporting measures through 
                participation in a qualified clinical data 
                registry.--For 2014 and subsequent years, the 
                Secretary shall treat an eligible professional 
                as satisfactorily submitting data on quality 
                measures under subparagraph (A) and, for 2016 
                and subsequent years, subparagraph (A) or (C) 
                if, in lieu of reporting measures under 
                subsection (k)(2)(C), the eligible professional 
                is satisfactorily participating, as determined 
                by the Secretary, in a qualified clinical data 
                registry (as described in subparagraph (E)) for 
                the year.
                  (E) Qualified clinical data registry.--
                          (i) In general.--The Secretary shall 
                        establish requirements for an entity to 
                        be considered a qualified clinical data 
                        registry. Such requirements shall 
                        include a requirement that the entity 
                        provide the Secretary with such 
                        information, at such times, and in such 
                        manner, as the Secretary determines 
                        necessary to carry out this subsection.
                          (ii) Considerations.--In establishing 
                        the requirements under clause (i), the 
                        Secretary shall consider whether an 
                        entity--
                                  (I) has in place mechanisms 
                                for the transparency of data 
                                elements and specifications, 
                                risk models, and measures;
                                  (II) requires the submission 
                                of data from participants with 
                                respect to multiple payers;
                                  (III) provides timely 
                                performance reports to 
                                participants at the individual 
                                participant level; and
                                  (IV) supports quality 
                                improvement initiatives for 
                                participants.
                          (iii) Measures.--With respect to 
                        measures used by a qualified clinical 
                        data registry--
                                  (I) sections 1890(b)(7) and 
                                1890A(a) shall not apply; and
                                  (II) measures endorsed by the 
                                entity with a contract with the 
                                Secretary under section 1890(a) 
                                may be used.
                          (iv) Consultation.--In carrying out 
                        this subparagraph, the Secretary shall 
                        consult with interested parties.
                          (v) Determination.--The Secretary 
                        shall establish a process to determine 
                        whether or not an entity meets the 
                        requirements established under clause 
                        (i). Such process may involve one or 
                        both of the following:
                                  (I) A determination by the 
                                Secretary.
                                  (II) A designation by the 
                                Secretary of one or more 
                                independent organizations to 
                                make such determination.
                  (F) Authority to revise satisfactorily 
                reporting data.--For years after 2009, the 
                Secretary, in consultation with stakeholders 
                and experts, may revise the criteria under this 
                subsection for satisfactorily submitting data 
                on quality measures under subparagraph (A) and 
                the criteria for submitting data on electronic 
                prescribing quality measures under subparagraph 
                (B)(ii).
          (4) Form of payment.--The payment under this 
        subsection shall be in the form of a single 
        consolidated payment.
          (5) Application.--
                  (A) Physician reporting system rules.--
                Paragraphs (5), (6),and (8) of subsection (k) 
                shall apply for purposes of this subsection in 
                the same manner as they apply for purposes of 
                such subsection.
                  (B) Coordination with other bonus payments.--
                The provisions of this subsection shall not be 
                taken into account in applying subsections (m) 
                and (u) of section 1833 and any payment under 
                such subsections shall not be taken into 
                account in computing allowable charges under 
                this subsection.
                  (C) Implementation.--Notwithstanding any 
                other provision of law, for 2007, 2008, and 
                2009, the Secretary may implement by program 
                instruction or otherwise this subsection.
                  (D) Validation.--
                          (i) In general.--Subject to the 
                        succeeding provisions of this 
                        subparagraph, for purposes of 
                        determining whether a measure is 
                        applicable to the covered professional 
                        services of an eligible professional 
                        under this subsection for 2007 and 288, 
                        the Secretary shall presume that if an 
                        eligible professional submits data for 
                        a measure, such measure is applicable 
                        to such professional.
                          (ii) Method.--The Secretary may 
                        establish procedures to validate (by 
                        sampling or other means as the 
                        Secretary determines to be appropriate) 
                        whether measures applicable to covered 
                        professional services of an eligible 
                        professional have been reported.
                          (iii) Denial of payment authority.--
                        If the Secretary determines that an 
                        eligible professional (or, in the case 
                        of a group practice under paragraph 
                        (3)(C), the group practice) has not 
                        reported measures applicable to covered 
                        professional services of such 
                        professional, the Secretary shall not 
                        pay the incentive payment under this 
                        subsection. If such payments for such 
                        period have already been made, the 
                        Secretary shall recoup such payments 
                        from the eligible professional (or the 
                        group practice).
                  (E) Limitations on review.--
                          Except as provided in subparagraph 
                        (I), there shall be no administrative 
                        or judicial review under 1869, section 
                        1878, or otherwise of
                          (i) the determination of measures 
                        applicable to services furnished by 
                        eligible professionals under this 
                        subsection;
                          (ii) the determination of 
                        satisfactory reporting under this 
                        subsection;
                          (iii) the determination of a 
                        successful electronic prescriber under 
                        paragraph (3), the limitation under 
                        paragraph (2)(B), and the exception 
                        under subsection (a)(5)(B); and
                          (iv) the determination of any 
                        incentive payment under this subsection 
                        and the payment adjustment under 
                        paragraphs (5)(A) and (8)(A) of 
                        subsection (a).
                  (F) Extension.--For 2008 through reporting 
                periods occurring in 2015, the Secretary shall 
                establish and, for reporting periods occurring 
                in 2016 and subsequent years, the Secretary may 
                establish alternative criteria for 
                satisfactorily reporting under this subsection 
                and alternative reporting periods under 
                paragraph (6)(C) for reporting groups of 
                measures under subsection (k)(2)(B) and for 
                reporting using the method specified in 
                subsection (k)(4).
                  (G) Posting on website.--The Secretary shall 
                post on the Internet website of the Centers for 
                Medicare & Medicaid Services, in an easily 
                understandable format, a list of the names of 
                the following:
                          (i) The eligible professionals (or, 
                        in the case of reporting under 
                        paragraph (3)(C), the group practices) 
                        who satisfactorily submitted data on 
                        quality measures under this subsection.
                          (ii) The eligible professionals (or, 
                        in the case of reporting under 
                        paragraph (3)(C), the group practices) 
                        who are successful electronic 
                        prescribers.
                  (H) Feedback.--The Secretary shall provide 
                timely feedback to eligible professionals on 
                the performance of the eligible professional 
                with respect to satisfactorily submitting data 
                on quality measures under this subsection.
                  (I) Informal appeals process.--The Secretary 
                shall, by not later than January 1, 2011, 
                establish and have in place an informal process 
                for eligible professionals to seek a review of 
                the determination that an eligible professional 
                did not satisfactorily submit data on quality 
                measures under this subsection.
          (6) Definitions.--For purposes of this subsection:
                  (A) Eligible professional; covered 
                professional services.--The terms ``eligible 
                professional'' and ``covered professional 
                services'' have the meanings given such termsin 
                subsection (k)(3).
                  (B) Physician reporting system.--The term 
                ``physician reporting system'' means the system 
                established under subsection (k).
                  (C) Reporting period.--
                          (i) In general.--Subject to clauses 
                        (ii) and (iii), the term ``reporting 
                        period'' means--
                                  (I) for 2007, the period 
                                beginning on July 1, 2007, and 
                                ending on December 31, 2007; 
                                and
                                  (II) for 2008 and subsequent 
                                years, the entire year.
                          (ii) Authority to revise reporting 
                        period.--For years after 2009, the 
                        Secretary may revise the reporting 
                        period under clause (i) if the 
                        Secretary determines such revision is 
                        appropriate, produces valid results on 
                        measures reported, and is consistent 
                        with the goals of maximizing scientific 
                        validity and reducing administrative 
                        burden. If the Secretary revises such 
                        period pursuant to the preceding 
                        sentence, the term ``reporting period'' 
                        shall mean such revised period.
                          (iii) Reference.--Any reference in 
                        this subsection to a reporting period 
                        with respect to the application of 
                        subsection (a)(5) (a)(8) shall be 
                        deemed a reference to the reporting 
                        period under subsection (a)(5)(D)(iii) 
                        or the quality reporting period under 
                        subsection (a)(8)(D)(iii), 
                        respectively.
          (7) Integration of physician quality reporting and 
        ehr reporting.--Not later than January 1, 2012, the 
        Secretary shall develop a plan to integrate reporting 
        on quality measures under this subsection with 
        reporting requirements under subsection (o) relating to 
        the meaningful use of electronic health records. Such 
        integration shall consist of the following:
                  (A) The selection of measures, the reporting 
                of which would both demonstrate--
                          (i) meaningful use of an electronic 
                        health record for purposes of 
                        subsection (o); and
                          (ii) quality of care furnished to an 
                        individual.
                  (B) Such other activities as specified by the 
                Secretary.
          (8) Additional incentive payment.--
                  (A) In general.--For 2011 through 2014, if an 
                eligible professional meets the requirements 
                described in subparagraph (B), the applicable 
                quality percent for such year, as described in 
                clauses (iii) and (iv) of paragraph (1)(B), 
                shall be increased by 0.5 percentage points.
                  (B) Requirements described.--In order to 
                qualify for the additional incentive payment 
                described in subparagraph (A), an eligible 
                professional shall meet the following 
                requirements:
                          (i) The eligible professional shall--
                                  (I) satisfactorily submit 
                                data on quality measures for 
                                purposes of paragraph (1) for a 
                                year; and
                                  (II) have such data submitted 
                                on their behalf through a 
                                Maintenance of Certification 
                                Program (as defined in 
                                subparagraph (C)(i)) that 
                                meets--
                                          (aa) the criteria for 
                                        a registry (as 
                                        described in subsection 
                                        (k)(4)); or
                                          (bb) an alternative 
                                        form and manner 
                                        determined appropriate 
                                        by the Secretary.
                          (ii) The eligible professional, more 
                        frequently than is required to qualify 
                        for or maintain board certification 
                        status--
                                  (I) participates in such a 
                                Maintenance of Certification 
                                program for a year; and
                                  (II) successfully completes a 
                                qualified Maintenance of 
                                Certification Program practice 
                                assessment (as defined in 
                                subparagraph (C)(ii)) for such 
                                year.
                          (iii) A Maintenance of Certification 
                        program submits to the Secretary, on 
                        behalf of the eligible professional, 
                        information--
                                  (I) in a form and manner 
                                specified by the Secretary, 
                                that the eligible professional 
                                has successfully met the 
                                requirements of clause (ii) 
                                (which may be in the form of a 
                                structural measure);
                                  (II) if requested by the 
                                Secretary, on the survey of 
                                patient experience with care 
                                (as described in subparagraph 
                                (C)(ii)(II)); and
                                  (III) as the Secretary may 
                                require, on the methods, 
                                measures, and data used under 
                                the Maintenance of 
                                Certification Program and the 
                                qualified Maintenance of 
                                Certification Program practice 
                                assessment.
                  (C) Definitions.--For purposes of this 
                paragraph:
                          (i) The term ``Maintenance of 
                        Certification Program'' means a 
                        continuous assessment program, such as 
                        qualified American Board of Medical 
                        Specialties Maintenance of 
                        Certification program or an equivalent 
                        program (as determined by the 
                        Secretary), that advances quality and 
                        the lifelong learning and self-
                        assessment of board certified specialty 
                        physicians by focusing on the 
                        competencies of patient care, medical 
                        knowledge, practice-based learning, 
                        interpersonal and communication skills 
                        and professionalism. Such a program 
                        shall include the following:
                                  (I) The program requires the 
                                physician to maintain a valid, 
                                unrestricted medical license in 
                                the United States.
                                  (II) The program requires a 
                                physician to participate in 
                                educational and self-assessment 
                                programs that require an 
                                assessment of what was learned.
                                  (III) The program requires a 
                                physician to demonstrate, 
                                through a formalized, secure 
                                examination, that the physician 
                                has the fundamental diagnostic 
                                skills, medical knowledge, and 
                                clinical judgment to provide 
                                quality care in their 
                                respective specialty.
                                  (IV) The program requires 
                                successful completion of a 
                                qualified Maintenance of 
                                Certification Program practice 
                                assessment as described in 
                                clause (ii).
                          (ii) The term ``qualified Maintenance 
                        of Certification Program practice 
                        assessment'' means an assessment of a 
                        physician's practice that--
                                  (I) includes an initial 
                                assessment of an eligible 
                                professional's practice that is 
                                designed to demonstrate the 
                                physician's use of evidence-
                                based medicine;
                                  (II) includes a survey of 
                                patient experience with care; 
                                and
                                  (III) requires a physician to 
                                implement a quality improvement 
                                intervention to address a 
                                practice weakness identified in 
                                the initial assessment under 
                                subclause (I) and then to 
                                remeasure to assess performance 
                                improvement after such 
                                intervention.
          (9) Continued application for purposes of mips and 
        for certain professionals volunteering to report.--The 
        Secretary shall, in accordance with subsection 
        (q)(1)(F), carry out the processes under this 
        subsection--
                  (A) for purposes of subsection (q); and
                  (B) for eligible professionals who are not 
                MIPS eligible professionals (as defined in 
                subsection (q)(1)(C)) for the year involved.
  (n) Physician Feedback Program.--
          (1) Establishment.--
                  (A) In general.--
                          (i) Establishment.--The Secretary 
                        shall establish a Physician Feedback 
                        Program (in this subsection referred to 
                        as the ``Program'').
                          (ii) Reports on resources.--The 
                        Secretary shall use claims data under 
                        this title (and may use other data) to 
                        provide confidential reports to 
                        physicians (and, as determined 
                        appropriate by the Secretary, to groups 
                        of physicians) that measure the 
                        resources involved in furnishing care 
                        to individuals under this title.
                          (iii) Inclusion of certain 
                        information.--If determined appropriate 
                        by the Secretary, the Secretary may 
                        include information on the quality of 
                        care furnished to individuals under 
                        this title by the physician (or group 
                        of physicians) in such reports.
                  (B) Resource use.--The resources described in 
                subparagraph (A)(ii) may be measured--
                          (i) on an episode basis;
                          (ii) on a per capita basis; or
                          (iii) on both an episode and a per 
                        capita basis.
          (2) Implementation.--The Secretary shall implement 
        the Program by not later than January 1, 2009.
          (3) Data for reports.--To the extent practicable, 
        reports under the Program shall be based on the most 
        recent data available.
          (4) Authority to focus initial application.--The 
        Secretary may focus the initial application of the 
        Program as appropriate, such as focusing the Program 
        on--
                  (A) physician specialties that account for a 
                certain percentage of all spending for 
                physicians' services under this title;
                  (B) physicians who treat conditions that have 
                a high cost or a high volume, or both, under 
                this title;
                  (C) physicians who use a high amount of 
                resources compared to other physicians;
                  (D) physicians practicing in certain 
                geographic areas; or
                  (E) physicians who treat a minimum number of 
                individuals under this title.
          (5) Authority to exclude certain information if 
        insufficient information.--The Secretary may exclude 
        certain information regarding a service from a report 
        under the Program with respect to a physician (or group 
        of physicians) if the Secretary determines that there 
        is insufficient information relating to that service to 
        provide a valid report on that service.
          (6) Adjustment of data.--To the extent practicable, 
        the Secretary shall make appropriate adjustments to the 
        data used in preparing reports under the Program, such 
        as adjustments to take into account variations in 
        health status and other patient characteristics. For 
        adjustments for reports on utilization under paragraph 
        (9), see subparagraph (D) of such paragraph.
          (7) Education and outreach.--The Secretary shall 
        provide for education and outreach activities to 
        physicians on the operation of, and methodologies 
        employed under, the Program.
          (8) Disclosure exemption.--Reports under the Program 
        shall be exempt from disclosure under section 552 of 
        title 5, United States Code.
          (9) Reports on utilization.--
                  (A) Development of episode grouper.--
                          (i) In general.--The Secretary shall 
                        develop an episode grouper that 
                        combines separate but clinically 
                        related items and services into an 
                        episode of care for an individual, as 
                        appropriate.
                          (ii) Timeline for development.--The 
                        episode grouper described in 
                        subparagraph (A) shall be developed by 
                        not later than January 1, 2012.
                          (iii) Public availability.--The 
                        Secretary shall make the details of the 
                        episode grouper described in 
                        subparagraph (A) available to the 
                        public.
                          (iv) Endorsement.--The Secretary 
                        shall seek endorsement of the episode 
                        grouper described in subparagraph (A) 
                        by the entity with a contract under 
                        section 1890(a).
                  (B) Reports on utilization.--Effective 
                beginning with 2012, the Secretary shall 
                provide reports to physicians that compare, as 
                determined appropriate by the Secretary, 
                patterns of resource use of the individual 
                physician to such patterns of other physicians.
                  (C) Analysis of data.--The Secretary shall, 
                for purposes of preparing reports under this 
                paragraph, establish methodologies as 
                appropriate, such as to--
                          (i) attribute episodes of care, in 
                        whole or in part, to physicians;
                          (ii) identify appropriate physicians 
                        for purposes of comparison under 
                        subparagraph (B); and
                          (iii) aggregate episodes of care 
                        attributed to a physician under clause 
                        (i) into a composite measure per 
                        individual.
                  (D) Data adjustment.--In preparing reports 
                under this paragraph, the Secretary shall make 
                appropriate adjustments, including 
                adjustments--
                          (i) to account for differences in 
                        socioeconomic and demographic 
                        characteristics, ethnicity, and health 
                        status of individuals (such as to 
                        recognize that less healthy individuals 
                        may require more intensive 
                        interventions); and
                          (ii) to eliminate the effect of 
                        geographic adjustments in payment rates 
                        (as described in subsection (e)).
                  (E) Public availability of methodology.--The 
                Secretary shall make available to the public--
                          (i) the methodologies established 
                        under subparagraph (C);
                          (ii) information regarding any 
                        adjustments made to data under 
                        subparagraph (D); and
                          (iii) aggregate reports with respect 
                        to physicians.
                  (F) Definition of physician.--In this 
                paragraph:
                          (i) In general.--The term 
                        ``physician'' has the meaning given 
                        that term in section 1861(r)(1).
                          (ii) Treatment of groups.--Such term 
                        includes, as the Secretary determines 
                        appropriate, a group of physicians.
                  (G) Limitations on review.--There shall be no 
                administrative or judicial review under section 
                1869, section 1878, or otherwise of the 
                establishment of the methodology under 
                subparagraph (C), including the determination 
                of an episode of care under such methodology.
          (10) Coordination with other value-based purchasing 
        reforms.--The Secretary shall coordinate the Program 
        with the value-based payment modifier established under 
        subsection (p) and, as the Secretary determines 
        appropriate, other similar provisions of this title.
          (11) Reports ending with 2017.--Reports under the 
        Program shall not be provided after December 31, 2017. 
        See subsection (q)(12) for reports under the eligible 
        professionals Merit-based Incentive Payment System.
  (o) Incentives for Adoption and Meaningful Use of Certified 
EHR Technology.--
          (1) Incentive payments.--
                  (A) In general.--
                          (i) In general.--Subject to the 
                        succeeding subparagraphs of this 
                        paragraph, with respect to covered 
                        professional services furnished by an 
                        eligible professional during a payment 
                        year (as defined in subparagraph (E)), 
                        if the eligible professional is a 
                        meaningful EHR user (as determined 
                        under paragraph (2)) for the EHR 
                        reporting period with respect to such 
                        year, in addition to the amount 
                        otherwise paid under this part, there 
                        also shall be paid to the eligible 
                        professional (or to an employer or 
                        facility in the cases described in 
                        clause (A) of section 1842(b)(6)), from 
                        the Federal Supplementary Medical 
                        Insurance Trust Fund established under 
                        section 1841 an amount equal to 75 
                        percent of the Secretary's estimate 
                        (based on claims submitted not later 
                        than 2 months after the end of the 
                        payment year) of the allowed charges 
                        under this part for all such covered 
                        professional services furnished by the 
                        eligible professional during such year.
                          (ii) No incentive payments with 
                        respect to years after 2016.--No 
                        incentive payments may be made under 
                        this subsection with respect to a year 
                        after 2016.
                  (B) Limitations on amounts of incentive 
                payments.--
                          (i) In general.--In no case shall the 
                        amount of the incentive payment 
                        provided under this paragraph for an 
                        eligible professional for a payment 
                        year exceed the applicable amount 
                        specified under this subparagraph with 
                        respect to such eligible professional 
                        and such year.
                          (ii) Amount.--Subject to clauses 
                        (iii) through (v), the applicable 
                        amount specified in this subparagraph 
                        for an eligible professional is as 
                        follows:
                                  (I) For the first payment 
                                year for such professional, 
                                $15,000 (or, if the first 
                                payment year for such eligible 
                                professional is 2011 or 2012, 
                                $18,000).
                                  (II) For the second payment 
                                year for such professional, 
                                $12,000.
                                  (III) For the third payment 
                                year for such professional, 
                                $8,000.
                                  (IV) For the fourth payment 
                                year for such professional, 
                                $4,000.
                                  (V) For the fifth payment 
                                year for such professional, 
                                $2,000.
                                  (VI) For any succeeding 
                                payment year for such 
                                professional, $0.
                          (iii) Phase down for eligible 
                        professionals first adopting ehr after 
                        2013.--If the first payment year for an 
                        eligible professional is after 2013, 
                        then the amount specified in this 
                        subparagraph for a payment year for 
                        such professional is the same as the 
                        amount specified in clause (ii) for 
                        such payment year for an eligible 
                        professional whose first payment year 
                        is 2013.
                          (iv) Increase for certain eligible 
                        professionals.--In the case of an 
                        eligible professional who predominantly 
                        furnishes services under this part in 
                        an area that is designated by the 
                        Secretary (under section 332(a)(1)(A) 
                        of the Public Health Service Act) as a 
                        health professional shortage area, the 
                        amount that would otherwise apply for a 
                        payment year for such professional 
                        under subclauses (I) through (V) of 
                        clause (ii) shall be increased by 10 
                        percent. In implementing the preceding 
                        sentence, the Secretary may, as 
                        determined appropriate, apply 
                        provisions of subsections (m) and (u) 
                        of section 1833 in a similar manner as 
                        such provisions apply under such 
                        subsection.
                          (v) No incentive payment if first 
                        adopting after 2014.--If the first 
                        payment year for an eligible 
                        professional is after 2014 then the 
                        applicable amount specified in this 
                        subparagraph for such professional for 
                        such year and any subsequent year shall 
                        be $0.
                  (C) Non-application to hospital-based 
                eligible professionals.--
                          (i) In general.--No incentive payment 
                        may be made under this paragraph in the 
                        case of a hospital-based eligible 
                        professional.
                          (ii) Hospital-based eligible 
                        professional.--For purposes of clause 
                        (i), the term ``hospital-based eligible 
                        professional'' means, with respect to 
                        covered professional services furnished 
                        by an eligible professional during the 
                        EHR reporting period for a payment 
                        year, an eligible professional, such as 
                        a pathologist, anesthesiologist, or 
                        emergency physician, who furnishes 
                        substantially all of such services in a 
                        hospital inpatient or emergency room 
                        setting and through the use of the 
                        facilities and equipment, including 
                        qualified electronic health records, of 
                        the hospital. The determination of 
                        whether an eligible professional is a 
                        hospital-based eligible professional 
                        shall be made on the basis of the site 
                        of service (as defined by the 
                        Secretary) and without regard to any 
                        employment or billing arrangement 
                        between the eligible professional and 
                        any other provider.
                  (D) Payment.--
                          (i) Form of payment.--The payment 
                        under this paragraph may be in the form 
                        of a single consolidated payment or in 
                        the form of such periodic installments 
                        as the Secretary may specify.
                          (ii) Coordination of application of 
                        limitation for professionals in 
                        different practices.--In the case of an 
                        eligible professional furnishing 
                        covered professional services in more 
                        than one practice (as specified by the 
                        Secretary), the Secretary shall 
                        establish rules to coordinate the 
                        incentive payments, including the 
                        application of the limitation on 
                        amounts of such incentive payments 
                        under this paragraph, among such 
                        practices.
                          (iii) Coordination with medicaid.--
                        The Secretary shall seek, to the 
                        maximum extent practicable, to avoid 
                        duplicative requirements from Federal 
                        and State governments to demonstrate 
                        meaningful use of certified EHR 
                        technology under this title and title 
                        XIX. The Secretary may also adjust the 
                        reporting periods under such title and 
                        such subsections in order to carry out 
                        this clause.
                  (E) Payment year defined.--
                          (i) In general.--For purposes of this 
                        subsection, the term ``payment year'' 
                        means a year beginning with 2011.
                          (ii) First, second, etc. payment 
                        year.--The term ``first payment year'' 
                        means, with respect to covered 
                        professional services furnished by an 
                        eligible professional, the first year 
                        for which an incentive payment is made 
                        for such services under this 
                        subsection. The terms ``second payment 
                        year'', ``third payment year'', 
                        ``fourth payment year'', and ``fifth 
                        payment year'' mean, with respect to 
                        covered professional services furnished 
                        by such eligible professional, each 
                        successive year immediately following 
                        the first payment year for such 
                        professional.
          (2) Meaningful ehr user.--
                  (A) In general.--An eligible professional 
                shall be treated as a meaningful EHR user for 
                an EHR reporting period for a payment year (or, 
                for purposes of subsection (a)(7), for an EHR 
                reporting period under such subsection for a 
                year, or pursuant to subparagraph (D) for 
                purposes of subsection (q), for a performance 
                period under such subsection for a year) if 
                each of the following requirements is met:
                          (i) Meaningful use of certified ehr 
                        technology.--The eligible professional 
                        demonstrates to the satisfaction of the 
                        Secretary, in accordance with 
                        subparagraph (C)(i), that during such 
                        period the professional is using 
                        certified EHR technology in a 
                        meaningful manner, which shall include 
                        the use of electronic prescribing as 
                        determined to be appropriate by the 
                        Secretary.
                          (ii) Information exchange.--The 
                        eligible professional demonstrates to 
                        the satisfaction of the Secretary, in 
                        accordance with subparagraph (C)(i), 
                        that during such period such certified 
                        EHR technology is connected in a manner 
                        that provides, in accordance with law 
                        and standards applicable to the 
                        exchange of information, for the 
                        electronic exchange of health 
                        information to improve the quality of 
                        health care, such as promoting care 
                        coordination, and the professional 
                        demonstrates (through a process 
                        specified by the Secretary, such as the 
                        use of an attestation) that the 
                        professional has not knowingly and 
                        willfully taken action (such as to 
                        disable functionality) to limit or 
                        restrict the compatibility or 
                        interoperability of the certified EHR 
                        technology.
                          (iii) Reporting on measures using 
                        ehr.--Subject to subparagraph (B)(ii) 
                        and subsection (q)(5)(B)(ii)(II) and 
                        using such certified EHR technology, 
                        the eligible professional submits 
                        information for such period, in a form 
                        and manner specified by the Secretary, 
                        on such clinical quality measures and 
                        such other measures as selected by the 
                        Secretary under subparagraph (B)(i).
                The Secretary may provide for the use of 
                alternative means for meeting the requirements 
                of clauses (i), (ii), and (iii) in the case of 
                an eligible professional furnishing covered 
                professional services in a group practice (as 
                defined by the Secretary). The Secretary shall 
                seek to improve the use of electronic health 
                records and health care quality over time [by 
                requiring more stringent measures of meaningful 
                use selected under this paragraph].
                  (B) Reporting on measures.--
                          (i) Selection.--The Secretary shall 
                        select measures for purposes of 
                        subparagraph (A)(iii) but only 
                        consistent with the following:
                                  (I) The Secretary shall 
                                provide preference to clinical 
                                quality measures that have been 
                                endorsed by the entity with a 
                                contract with the Secretary 
                                under section 1890(a).
                                  (II) Prior to any measure 
                                being selected under this 
                                subparagraph, the Secretary 
                                shall publish in the Federal 
                                Register such measure and 
                                provide for a period of public 
                                comment on such measure.
                          (ii) Limitation.--The Secretary may 
                        not require the electronic reporting of 
                        information on clinical quality 
                        measures under subparagraph (A)(iii) 
                        unless the Secretary has the capacity 
                        to accept the information 
                        electronically, which may be on a pilot 
                        basis.
                          (iii) Coordination of reporting of 
                        information.--In selecting such 
                        measures, and in establishing the form 
                        and manner for reporting measures under 
                        subparagraph (A)(iii), the Secretary 
                        shall seek to avoid redundant or 
                        duplicative reporting otherwise 
                        required, including reporting under 
                        subsection (k)(2)(C).
                  (C) Demonstration of meaningful use of 
                certified ehr technology and information 
                exchange.--
                          (i) In general.--A professional may 
                        satisfy the demonstration requirement 
                        of clauses (i) and (ii) of subparagraph 
                        (A) through means specified by the 
                        Secretary, which may include--
                                  (I) an attestation;
                                  (II) the submission of claims 
                                with appropriate coding (such 
                                as a code indicating that a 
                                patient encounter was 
                                documented using certified EHR 
                                technology);
                                  (III) a survey response;
                                  (IV) reporting under 
                                subparagraph (A)(iii); and
                                  (V) other means specified by 
                                the Secretary.
                          (ii) Use of part d data.--
                        Notwithstanding sections 1860D-
                        15(d)(2)(B) and 1860D-15(f)(2), the 
                        Secretary may use data regarding drug 
                        claims submitted for purposes of 
                        section 1860D-15 that are necessary for 
                        purposes of subparagraph (A).
                  (D) Continued application for purposes of 
                mips.--With respect to 2019 and each subsequent 
                payment year, the Secretary shall, for purposes 
                of subsection (q) and in accordance with 
                paragraph (1)(F) of such subsection, determine 
                whether an eligible professional who is a MIPS 
                eligible professional (as defined in subsection 
                (q)(1)(C)) for such year is a meaningful EHR 
                user under this paragraph for the performance 
                period under subsection (q) for such year. The 
                provisions of subparagraphs (B) and (D) of 
                subsection (a)(7), shall apply to assessments 
                of MIPS eligible professionals under subsection 
                (q) with respect to the performance category 
                described in subsection (q)(2)(A)(iv) in an 
                appropriate manner which may be similar to the 
                manner in which such provisions apply with 
                respect to payment adjustments made under 
                subsection (a)(7)(A).
          (3) Application.--
                  (A) Physician reporting system rules.--
                Paragraphs (5), (6), and (8) of subsection (k) 
                shall apply for purposes of this subsection in 
                the same manner as they apply for purposes of 
                such subsection.
                  (B) Coordination with other payments.--The 
                provisions of this subsection shall not be 
                taken into account in applying the provisions 
                of subsection (m) of this section and of 
                section 1833(m) and any payment under such 
                provisions shall not be taken into account in 
                computing allowable charges under this 
                subsection.
                  (C) Limitations on review.--There shall be no 
                administrative or judicial review under section 
                1869, section 1878, or otherwise, of--
                          (i) the methodology and standards for 
                        determining payment amounts under this 
                        subsection and payment adjustments 
                        under subsection (a)(7)(A), including 
                        the limitation under paragraph (1)(B) 
                        and coordination under clauses (ii) and 
                        (iii) of paragraph (1)(D);
                          (ii) the methodology and standards 
                        for determining a meaningful EHR user 
                        under paragraph (2), including 
                        selection of measures under paragraph 
                        (2)(B), specification of the means of 
                        demonstrating meaningful EHR use under 
                        paragraph (2)(C), and the hardship 
                        exception under subsection (a)(7)(B);
                          (iii) the methodology and standards 
                        for determining a hospital-based 
                        eligible professional under paragraph 
                        (1)(C); and
                          (iv) the specification of reporting 
                        periods under paragraph (5) and the 
                        selection of the form of payment under 
                        paragraph (1)(D)(i).
                  (D) Posting on website.--The Secretary shall 
                post on the Internet website of the Centers for 
                Medicare & Medicaid Services, in an easily 
                understandable format, a list of the names, 
                business addresses, and business phone numbers 
                of the eligible professionals who are 
                meaningful EHR users and, as determined 
                appropriate by the Secretary, of group 
                practices receiving incentive payments under 
                paragraph (1).
          (4) Certified ehr technology defined.--For purposes 
        of this section, the term ``certified EHR technology'' 
        means a qualified electronic health record (as defined 
        in section 3000(13) of the Public Health Service Act) 
        that is certified pursuant to section 3001(c)(5) of 
        such Act as meeting standards adopted under section 
        3004 of such Act that are applicable to the type of 
        record involved (as determined by the Secretary, such 
        as an ambulatory electronic health record for office-
        based physicians or an inpatient hospital electronic 
        health record for hospitals).
          (5) Definitions.--For purposes of this subsection:
                  (A) Covered professional services.--The term 
                ``covered professional services'' has the 
                meaning given such term in subsection (k)(3).
                  (B) EHR reporting period.--The term ``EHR 
                reporting period'' means, with respect to a 
                payment year, any period (or periods) as 
                specified by the Secretary.
                  (C) Eligible professional.--The term 
                ``eligible professional'' means a physician, as 
                defined in section 1861(r).
  (p) Establishment of Value-based Payment Modifier.--
          (1) In general.--The Secretary shall establish a 
        payment modifier that provides for differential payment 
        to a physician or a group of physicians under the fee 
        schedule established under subsection (b) based upon 
        the quality of care furnished compared to cost (as 
        determined under paragraphs (2) and (3), respectively) 
        during a performance period. Such payment modifier 
        shall be separate from the geographic adjustment 
        factors established under subsection (e).
          (2) Quality.--
                  (A) In general.--For purposes of paragraph 
                (1), quality of care shall be evaluated, to the 
                extent practicable, based on a composite of 
                measures of the quality of care furnished (as 
                established by the Secretary under subparagraph 
                (B)).
                  (B) Measures.--
                          (i) The Secretary shall establish 
                        appropriate measures of the quality of 
                        care furnished by a physician or group 
                        of physicians to individuals enrolled 
                        under this part, such as measures that 
                        reflect health outcomes. Such measures 
                        shall be risk adjusted as determined 
                        appropriate by the Secretary.
                          (ii) The Secretary shall seek 
                        endorsement of the measures established 
                        under this subparagraph by the entity 
                        with a contract under section 1890(a).
                  (C) Continued application for purposes of 
                mips.--The Secretary shall, in accordance with 
                subsection (q)(1)(F), carry out subparagraph 
                (B) for purposes of subsection (q).
          (3) Costs.--For purposes of paragraph (1), costs 
        shall be evaluated, to the extent practicable, based on 
        a composite of appropriate measures of costs 
        established by the Secretary (such as the composite 
        measure under the methodology established under 
        subsection (n)(9)(C)(iii)) that eliminate the effect of 
        geographic adjustments in payment rates (as described 
        in subsection (e)), and take into account risk factors 
        (such as socioeconomic and demographic characteristics, 
        ethnicity, and health status of individuals (such as to 
        recognize that less healthy individuals may require 
        more intensive interventions) and other factors 
        determined appropriate by the Secretary. With respect 
        to 2019 and each subsequent year, the Secretary shall, 
        in accordance with subsection (q)(1)(F), carry out this 
        paragraph for purposes of subsection (q).
          (4) Implementation.--
                  (A) Publication of measures, dates of 
                implementation, performance period.--Not later 
                than January 1, 2012, the Secretary shall 
                publish the following:
                          (i) The measures of quality of care 
                        and costs established under paragraphs 
                        (2) and (3), respectively.
                          (ii) The dates for implementation of 
                        the payment modifier (as determined 
                        under subparagraph (B)).
                          (iii) The initial performance period 
                        (as specified under subparagraph 
                        (B)(ii)).
                  (B) Deadlines for implementation.--
                          (i) Initial implementation.--Subject 
                        to the preceding provisions of this 
                        subparagraph, the Secretary shall begin 
                        implementing the payment modifier 
                        established under this subsection 
                        through the rulemaking process during 
                        2013 for the physician fee schedule 
                        established under subsection (b).
                          (ii) Initial performance period.--
                                  (I) In general.--The 
                                Secretary shall specify an 
                                initial performance period for 
                                application of the payment 
                                modifier established under this 
                                subsection with respect to 
                                2015.
                                  (II) Provision of information 
                                during initial performance 
                                period.--During the initial 
                                performance period, the 
                                Secretary shall, to the extent 
                                practicable, provide 
                                information to physicians and 
                                groups of physicians about the 
                                quality of care furnished by 
                                the physician or group of 
                                physicians to individuals 
                                enrolled under this part 
                                compared to cost (as determined 
                                under paragraphs (2) and (3), 
                                respectively) with respect to 
                                the performance period.
                          (iii) Application.--The Secretary 
                        shall apply the payment modifier 
                        established under this subsection for 
                        items and services furnished on or 
                        after January 1, 2015, with respect to 
                        specific physicians and groups of 
                        physicians the Secretary determines 
                        appropriate, and for services furnished 
                        on or after January 1, 2017, with 
                        respect to all physicians and groups of 
                        physicians. Such payment modifier shall 
                        not be applied for items and services 
                        furnished on or after January 1, 2019.
                  (C) Budget neutrality.--The payment modifier 
                established under this subsection shall be 
                implemented in a budget neutral manner.
          (5) Systems-based care.--The Secretary shall, as 
        appropriate, apply the payment modifier established 
        under this subsection in a manner that promotes 
        systems-based care.
          (6) Consideration of special circumstances of certain 
        providers.--In applying the payment modifier under this 
        subsection, the Secretary shall, as appropriate, take 
        into account the special circumstances of physicians or 
        groups of physicians in rural areas and other 
        underserved communities.
          (7) Application.--For purposes of the initial 
        application of the payment modifier established under 
        this subsection during the period beginning on January 
        1, 2015, and ending on December 31, 2016, the term 
        ``physician'' has the meaning given such term in 
        section 1861(r). On or after January 1, 2017, the 
        Secretary may apply this subsection to eligible 
        professionals (as defined in subsection (k)(3)(B)) as 
        the Secretary determines appropriate.
          (8) Definitions.--For purposes of this subsection:
                  (A) Costs.--The term ``costs'' means 
                expenditures per individual as determined 
                appropriate by the Secretary. In making the 
                determination under the preceding sentence, the 
                Secretary may take into account the amount of 
                growth in expenditures per individual for a 
                physician compared to the amount of such growth 
                for other physicians.
                  (B) Performance period.--The term 
                ``performance period'' means a period specified 
                by the Secretary.
          (9) Coordination with other value-based purchasing 
        reforms.--The Secretary shall coordinate the value-
        based payment modifier established under this 
        subsection with the Physician Feedback Program under 
        subsection (n) and, as the Secretary determines 
        appropriate, other similar provisions of this title.
          (10) Limitations on review.--There shall be no 
        administrative or judicial review under section 1869, 
        section 1878, or otherwise of--
                  (A) the establishment of the value-based 
                payment modifier under this subsection;
                  (B) the evaluation of quality of care under 
                paragraph (2), including the establishment of 
                appropriate measures of the quality of care 
                under paragraph (2)(B);
                  (C) the evaluation of costs under paragraph 
                (3), including the establishment of appropriate 
                measures of costs under such paragraph;
                  (D) the dates for implementation of the 
                value-based payment modifier;
                  (E) the specification of the initial 
                performance period and any other performance 
                period under paragraphs (4)(B)(ii) and (8)(B), 
                respectively;
                  (F) the application of the value-based 
                payment modifier under paragraph (7); and
                  (G) the determination of costs under 
                paragraph (8)(A).
  (q) Merit-Based Incentive Payment System.--
          (1) Establishment.--
                  (A) In general.--Subject to the succeeding 
                provisions of this subsection, the Secretary 
                shall establish an eligible professional Merit-
                based Incentive Payment System (in this 
                subsection referred to as the ``MIPS'') under 
                which the Secretary shall--
                          (i) develop a methodology for 
                        assessing the total performance of each 
                        MIPS eligible professional according to 
                        performance standards under paragraph 
                        (3) for a performance period (as 
                        established under paragraph (4)) for a 
                        year;
                          (ii) using such methodology, provide 
                        for a composite performance score in 
                        accordance with paragraph (5) for each 
                        such professional for each performance 
                        period; and
                          (iii) use such composite performance 
                        score of the MIPS eligible professional 
                        for a performance period for a year to 
                        determine and apply a MIPS adjustment 
                        factor (and, as applicable, an 
                        additional MIPS adjustment factor) 
                        under paragraph (6) to the professional 
                        for the year.
                Notwithstanding subparagraph (C)(ii), under the 
                MIPS, the Secretary shall permit any eligible 
                professional (as defined in subsection 
                (k)(3)(B)) to report on applicable measures and 
                activities described in paragraph (2)(B).
                  (B) Program implementation.--The MIPS shall 
                apply to payments for items and services 
                furnished on or after January 1, 2019.
                  (C) MIPS eligible professional defined.--
                          (i) In general.--For purposes of this 
                        subsection, subject to clauses (ii) and 
                        (iv), the term ``MIPS eligible 
                        professional'' means--
                                  (I) for the first and second 
                                years for which the MIPS 
                                applies to payments (and for 
                                the performance period for such 
                                first and second year), a 
                                physician (as defined in 
                                section 1861(r)), a physician 
                                assistant, nurse practitioner, 
                                and clinical nurse specialist 
                                (as such terms are defined in 
                                section 1861(aa)(5)), a 
                                certified registered nurse 
                                anesthetist (as defined in 
                                section 1861(bb)(2)), and a 
                                group that includes such 
                                professionals; and
                                  (II) for the third year for 
                                which the MIPS applies to 
                                payments (and for the 
                                performance period for such 
                                third year) and for each 
                                succeeding year (and for the 
                                performance period for each 
                                such year), the professionals 
                                described in subclause (I), 
                                such other eligible 
                                professionals (as defined in 
                                subsection (k)(3)(B)) as 
                                specified by the Secretary, and 
                                a group that includes such 
                                professionals.
                          (ii) Exclusions.--For purposes of 
                        clause (i), the term ``MIPS eligible 
                        professional'' does not include, with 
                        respect to a year, an eligible 
                        professional (as defined in subsection 
                        (k)(3)(B)) who--
                                  (I) is a qualifying APM 
                                participant (as defined in 
                                section 1833(z)(2));
                                  (II) subject to clause (vii), 
                                is a partial qualifying APM 
                                participant (as defined in 
                                clause (iii)) for the most 
                                recent period for which data 
                                are available and who, for the 
                                performance period with respect 
                                to such year, does not report 
                                on applicable measures and 
                                activities described in 
                                paragraph (2)(B) that are 
                                required to be reported by such 
                                a professional under the MIPS; 
                                or
                                  (III) for the performance 
                                period with respect to such 
                                year, does not exceed the low-
                                volume threshold measurement 
                                selected under clause (iv).
                          (iii) Partial qualifying apm 
                        participant.--For purposes of this 
                        subparagraph, the term ``partial 
                        qualifying APM participant'' means, 
                        with respect to a year, an eligible 
                        professional for whom the Secretary 
                        determines the minimum payment 
                        percentage (or percentages), as 
                        applicable, described in paragraph (2) 
                        of section 1833(z) for such year have 
                        not been satisfied, but who would be 
                        considered a qualifying APM participant 
                        (as defined in such paragraph) for such 
                        year if--
                                  (I) with respect to 2019 and 
                                2020, the reference in 
                                subparagraph (A) of such 
                                paragraph to 25 percent was 
                                instead a reference to 20 
                                percent;
                                  (II) with respect to 2021 and 
                                2022--
                                          (aa) the reference in 
                                        subparagraph (B)(i) of 
                                        such paragraph to 50 
                                        percent was instead a 
                                        reference to 40 
                                        percent; and
                                          (bb) the references 
                                        in subparagraph (B)(ii) 
                                        of such paragraph to 50 
                                        percent and 25 percent 
                                        of such paragraph were 
                                        instead references to 
                                        40 percent and 20 
                                        percent, respectively; 
                                        and
                                  (III) with respect to 2023 
                                and subsequent years--
                                          (aa) the reference in 
                                        subparagraph (C)(i) of 
                                        such paragraph to 75 
                                        percent was instead a 
                                        reference to 50 
                                        percent; and
                                          (bb) the references 
                                        in subparagraph (C)(ii) 
                                        of such paragraph to 75 
                                        percent and 25 percent 
                                        of such paragraph were 
                                        instead references to 
                                        50 percent and 20 
                                        percent, respectively.
                          (iv) Selection of low-volume 
                        threshold measurement.--The Secretary 
                        shall select a low-volume threshold to 
                        apply for purposes of clause (ii)(III), 
                        which may include one or more or a 
                        combination of the following:
                                  (I) The minimum number (as 
                                determined by the Secretary) of 
                                individuals enrolled under this 
                                part who are treated by the 
                                eligible professional for the 
                                performance period involved.
                                  (II) The minimum number (as 
                                determined by the Secretary) of 
                                items and services furnished to 
                                individuals enrolled under this 
                                part by such professional for 
                                such performance period.
                                  (III) The minimum amount (as 
                                determined by the Secretary) of 
                                allowed charges billed by such 
                                professional under this part 
                                for such performance period.
                          (v) Treatment of new medicare 
                        enrolled eligible professionals.--In 
                        the case of a professional who first 
                        becomes a Medicare enrolled eligible 
                        professional during the performance 
                        period for a year (and had not 
                        previously submitted claims under this 
                        title such as a person, an entity, or a 
                        part of a physician group or under a 
                        different billing number or tax 
                        identifier), such professional shall 
                        not be treated under this subsection as 
                        a MIPS eligible professional until the 
                        subsequent year and performance period 
                        for such subsequent year.
                          (vi) Clarification.--In the case of 
                        items and services furnished during a 
                        year by an individual who is not a MIPS 
                        eligible professional (including 
                        pursuant to clauses (ii) and (v)) with 
                        respect to a year, in no case shall a 
                        MIPS adjustment factor (or additional 
                        MIPS adjustment factor) under paragraph 
                        (6) apply to such individual for such 
                        year.
                          (vii) Partial qualifying apm 
                        participant clarifications.--
                                  (I) Treatment as mips 
                                eligible professional.--In the 
                                case of an eligible 
                                professional who is a partial 
                                qualifying APM participant, 
                                with respect to a year, and 
                                who, for the performance period 
                                for such year, reports on 
                                applicable measures and 
                                activities described in 
                                paragraph (2)(B) that are 
                                required to be reported by such 
                                a professional under the MIPS, 
                                such eligible professional is 
                                considered to be a MIPS 
                                eligible professional with 
                                respect to such year.
                                  (II) Not eligible for 
                                qualifying apm participant 
                                payments.--In no case shall an 
                                eligible professional who is a 
                                partial qualifying APM 
                                participant, with respect to a 
                                year, be considered a 
                                qualifying APM participant (as 
                                defined in paragraph (2) of 
                                section 1833(z)) for such year 
                                or be eligible for the 
                                additional payment under 
                                paragraph (1) of such section 
                                for such year.
                  (D) Application to group practices.--
                          (i) In general.--Under the MIPS:
                                  (I) Quality performance 
                                category.--The Secretary shall 
                                establish and apply a process 
                                that includes features of the 
                                provisions of subsection 
                                (m)(3)(C) for MIPS eligible 
                                professionals in a group 
                                practice with respect to 
                                assessing performance of such 
                                group with respect to the 
                                performance category described 
                                in clause (i) of paragraph 
                                (2)(A).
                                  (II) Other performance 
                                categories.--The Secretary may 
                                establish and apply a process 
                                that includes features of the 
                                provisions of subsection 
                                (m)(3)(C) for MIPS eligible 
                                professionals in a group 
                                practice with respect to 
                                assessing the performance of 
                                such group with respect to the 
                                performance categories 
                                described in clauses (ii) 
                                through (iv) of such paragraph.
                          (ii) Ensuring comprehensiveness of 
                        group practice assessment.--The process 
                        established under clause (i) shall to 
                        the extent practicable reflect the 
                        range of items and services furnished 
                        by the MIPS eligible professionals in 
                        the group practice involved.
                  (E) Use of registries.--Under the MIPS, the 
                Secretary shall encourage the use of qualified 
                clinical data registries pursuant to subsection 
                (m)(3)(E) in carrying out this subsection.
                  (F) Application of certain provisions.--In 
                applying a provision of subsection (k), (m), 
                (o), or (p) for purposes of this subsection, 
                the Secretary shall--
                          (i) adjust the application of such 
                        provision to ensure the provision is 
                        consistent with the provisions of this 
                        subsection; and
                          (ii) not apply such provision to the 
                        extent that the provision is 
                        duplicative with a provision of this 
                        subsection.
                  (G) Accounting for risk factors.--
                          (i) Risk factors.--Taking into 
                        account the relevant studies conducted 
                        and recommendations made in reports 
                        under section 2(d) of the Improving 
                        Medicare Post-Acute Care Transformation 
                        Act of 2014, and, as appropriate, other 
                        information, including information 
                        collected before completion of such 
                        studies and recommendations, the 
                        Secretary, on an ongoing basis, shall, 
                        as the Secretary determines appropriate 
                        and based on an individual's health 
                        status and other risk factors--
                                  (I) assess appropriate 
                                adjustments to quality 
                                measures, resource use 
                                measures, and other measures 
                                used under the MIPS; and
                                  (II) assess and implement 
                                appropriate adjustments to 
                                payment adjustments, composite 
                                performance scores, scores for 
                                performance categories, or 
                                scores for measures or 
                                activities under the MIPS.
          (2) Measures and activities under performance 
        categories.--
                  (A) Performance categories.--Under the MIPS, 
                the Secretary shall use the following 
                performance categories (each of which is 
                referred to in this subsection as a performance 
                category) in determining the composite 
                performance score under paragraph (5):
                          (i) Quality.
                          (ii) Resource use.
                          (iii) Clinical practice improvement 
                        activities.
                          (iv) Meaningful use of certified EHR 
                        technology.
                  (B) Measures and activities specified for 
                each category.--For purposes of paragraph 
                (3)(A) and subject to subparagraph (C), 
                measures and activities specified for a 
                performance period (as established under 
                paragraph (4)) for a year are as follows:
                          (i) Quality.--For the performance 
                        category described in subparagraph 
                        (A)(i), the quality measures included 
                        in the final measures list published 
                        under subparagraph (D)(i) for such year 
                        and the list of quality measures 
                        described in subparagraph (D)(vi) used 
                        by qualified clinical data registries 
                        under subsection (m)(3)(E).
                          (ii) Resource use.--For the 
                        performance category described in 
                        subparagraph (A)(ii), the measurement 
                        of resource use for such period under 
                        subsection (p)(3), using the 
                        methodology under subsection (r) as 
                        appropriate, and, as feasible and 
                        applicable, accounting for the cost of 
                        drugs under part D.
                          (iii) Clinical practice improvement 
                        activities.--For the performance 
                        category described in subparagraph 
                        (A)(iii), clinical practice improvement 
                        activities (as defined in subparagraph 
                        (C)(v)(III)) under subcategories 
                        specified by the Secretary for such 
                        period, which shall include at least 
                        the following:
                                  (I) The subcategory of 
                                expanded practice access, such 
                                as same day appointments for 
                                urgent needs and after hours 
                                access to clinician advice.
                                  (II) The subcategory of 
                                population management, such as 
                                monitoring health conditions of 
                                individuals to provide timely 
                                health care interventions or 
                                participation in a qualified 
                                clinical data registry.
                                  (III) The subcategory of care 
                                coordination, such as timely 
                                communication of test results, 
                                timely exchange of clinical 
                                information to patients and 
                                other providers, and use of 
                                remote monitoring or 
                                telehealth.
                                  (IV) The subcategory of 
                                beneficiary engagement, such as 
                                the establishment of care plans 
                                for individuals with complex 
                                care needs, beneficiary self-
                                management assessment and 
                                training, and using shared 
                                decision-making mechanisms.
                                  (V) The subcategory of 
                                patient safety and practice 
                                assessment, such as through use 
                                of clinical or surgical 
                                checklists and practice 
                                assessments related to 
                                maintaining certification.
                                  (VI) The subcategory of 
                                participation in an alternative 
                                payment model (as defined in 
                                section 1833(z)(3)(C)).
                        In establishing activities under this 
                        clause, the Secretary shall give 
                        consideration to the circumstances of 
                        small practices (consisting of 15 or 
                        fewer professionals) and practices 
                        located in rural areas and in health 
                        professional shortage areas (as 
                        designated under section 332(a)(1)(A) 
                        of the Public Health Service Act).
                          (iv) Meaningful ehr use.--For the 
                        performance category described in 
                        subparagraph (A)(iv), the requirements 
                        established for such period under 
                        subsection (o)(2) for determining 
                        whether an eligible professional is a 
                        meaningful EHR user.
                  (C) Additional provisions.--
                          (i) Emphasizing outcome measures 
                        under the quality performance 
                        category.--In applying subparagraph 
                        (B)(i), the Secretary shall, as 
                        feasible, emphasize the application of 
                        outcome measures.
                          (ii) Application of additional system 
                        measures.--The Secretary may use 
                        measures used for a payment system 
                        other than for physicians, such as 
                        measures for inpatient hospitals, for 
                        purposes of the performance categories 
                        described in clauses (i) and (ii) of 
                        subparagraph (A). For purposes of the 
                        previous sentence, the Secretary may 
                        not use measures for hospital 
                        outpatient departments, except in the 
                        case of items and services furnished by 
                        emergency physicians, radiologists, and 
                        anesthesiologists.
                          (iii) Global and population-based 
                        measures.--The Secretary may use global 
                        measures, such as global outcome 
                        measures, and population-based measures 
                        for purposes of the performance 
                        category described in subparagraph 
                        (A)(i).
                          (iv) Application of measures and 
                        activities to non-patient-facing 
                        professionals.--In carrying out this 
                        paragraph, with respect to measures and 
                        activities specified in subparagraph 
                        (B) for performance categories 
                        described in subparagraph (A), the 
                        Secretary--
                                  (I) shall give consideration 
                                to the circumstances of 
                                professional types (or 
                                subcategories of those types 
                                determined by practice 
                                characteristics) who typically 
                                furnish services that do not 
                                involve face-to-face 
                                interaction with a patient; and
                                  (II) may, to the extent 
                                feasible and appropriate, take 
                                into account such circumstances 
                                and apply under this subsection 
                                with respect to MIPS eligible 
                                professionals of such 
                                professional types or 
                                subcategories, alternative 
                                measures or activities that 
                                fulfill the goals of the 
                                applicable performance 
                                category.
                        In carrying out the previous sentence, 
                        the Secretary shall consult with 
                        professionals of such professional 
                        types or subcategories.
                          (v) Clinical practice improvement 
                        activities.--
                                  (I) Request for 
                                information.--In initially 
                                applying subparagraph (B)(iii), 
                                the Secretary shall use a 
                                request for information to 
                                solicit recommendations from 
                                stakeholders to identify 
                                activities described in such 
                                subparagraph and specifying 
                                criteria for such activities.
                                  (II) Contract authority for 
                                clinical practice improvement 
                                activities performance 
                                category.--In applying 
                                subparagraph (B)(iii), the 
                                Secretary may contract with 
                                entities to assist the 
                                Secretary in--
                                          (aa) identifying 
                                        activities described in 
                                        subparagraph (B)(iii);
                                          (bb) specifying 
                                        criteria for such 
                                        activities; and
                                          (cc) determining 
                                        whether a MIPS eligible 
                                        professional meets such 
                                        criteria.
                                  (III) Clinical practice 
                                improvement activities 
                                defined.--For purposes of this 
                                subsection, the term ``clinical 
                                practice improvement activity'' 
                                means an activity that relevant 
                                eligible professional 
                                organizations and other 
                                relevant stakeholders identify 
                                as improving clinical practice 
                                or care delivery and that the 
                                Secretary determines, when 
                                effectively executed, is likely 
                                to result in improved outcomes.
                  (D) Annual list of quality measures available 
                for mips assessment.--
                          (i) In general.--Under the MIPS, the 
                        Secretary, through notice and comment 
                        rulemaking and subject to the 
                        succeeding clauses of this 
                        subparagraph, shall, with respect to 
                        the performance period for a year, 
                        establish an annual final list of 
                        quality measures from which MIPS 
                        eligible professionals may choose for 
                        purposes of assessment under this 
                        subsection for such performance period. 
                        Pursuant to the previous sentence, the 
                        Secretary shall--
                                  (I) not later than November 1 
                                of the year prior to the first 
                                day of the first performance 
                                period under the MIPS, 
                                establish and publish in the 
                                Federal Register a final list 
                                of quality measures; and
                                  (II) not later than November 
                                1 of the year prior to the 
                                first day of each subsequent 
                                performance period, update the 
                                final list of quality measures 
                                from the previous year (and 
                                publish such updated final list 
                                in the Federal Register), by--
                                          (aa) removing from 
                                        such list, as 
                                        appropriate, quality 
                                        measures, which may 
                                        include the removal of 
                                        measures that are no 
                                        longer meaningful (such 
                                        as measures that are 
                                        topped out);
                                          (bb) adding to such 
                                        list, as appropriate, 
                                        new quality measures; 
                                        and
                                          (cc) determining 
                                        whether or not quality 
                                        measures on such list 
                                        that have undergone 
                                        substantive changes 
                                        should be included in 
                                        the updated list.
                          (ii) Call for quality measures.--
                                  (I) In general.--Eligible 
                                professional organizations and 
                                other relevant stakeholders 
                                shall be requested to identify 
                                and submit quality measures to 
                                be considered for selection 
                                under this subparagraph in the 
                                annual list of quality measures 
                                published under clause (i) and 
                                to identify and submit updates 
                                to the measures on such list. 
                                For purposes of the previous 
                                sentence, measures may be 
                                submitted regardless of whether 
                                such measures were previously 
                                published in a proposed rule or 
                                endorsed by an entity with a 
                                contract under section 1890(a).
                                  (II) Eligible professional 
                                organization defined.--In this 
                                subparagraph, the term 
                                ``eligible professional 
                                organization'' means a 
                                professional organization as 
                                defined by nationally 
                                recognized specialty boards of 
                                certification or equivalent 
                                certification boards.
                          (iii) Requirements.--In selecting 
                        quality measures for inclusion in the 
                        annual final list under clause (i), the 
                        Secretary shall--
                                  (I) provide that, to the 
                                extent practicable, all quality 
                                domains (as defined in 
                                subsection (s)(1)(B)) are 
                                addressed by such measures; and
                                  (II) ensure that such 
                                selection is consistent with 
                                the process for selection of 
                                measures under subsections (k), 
                                (m), and (p)(2).
                          (iv) Peer review.--Before including a 
                        new measure in the final list of 
                        measures published under clause (i) for 
                        a year, the Secretary shall submit for 
                        publication in applicable specialty-
                        appropriate, peer-reviewed journals 
                        such measure and the method for 
                        developing and selecting such measure, 
                        including clinical and other data 
                        supporting such measure.
                          (v) Measures for inclusion.--The 
                        final list of quality measures 
                        published under clause (i) shall 
                        include, as applicable, measures under 
                        subsections (k), (m), and (p)(2), 
                        including quality measures from among--
                                  (I) measures endorsed by a 
                                consensus-based entity;
                                  (II) measures developed under 
                                subsection (s); and
                                  (III) measures submitted 
                                under clause (ii)(I).
                        Any measure selected for inclusion in 
                        such list that is not endorsed by a 
                        consensus-based entity shall have a 
                        focus that is evidence-based.
                          (vi) Exception for qualified clinical 
                        data registry measures.--Measures used 
                        by a qualified clinical data registry 
                        under subsection (m)(3)(E) shall not be 
                        subject to the requirements under 
                        clauses (i), (iv), and (v). The 
                        Secretary shall publish the list of 
                        measures used by such qualified 
                        clinical data registries on the 
                        Internet website of the Centers for 
                        Medicare & Medicaid Services.
                          (vii) Exception for existing quality 
                        measures.--Any quality measure 
                        specified by the Secretary under 
                        subsection (k) or (m), including under 
                        subsection (m)(3)(E), and any measure 
                        of quality of care established under 
                        subsection (p)(2) for the reporting 
                        period or performance period under the 
                        respective subsection beginning before 
                        the first performance period under the 
                        MIPS--
                                  (I) shall not be subject to 
                                the requirements under clause 
                                (i) (except under items (aa) 
                                and (cc) of subclause (II) of 
                                such clause) or to the 
                                requirement under clause (iv); 
                                and
                                  (II) shall be included in the 
                                final list of quality measures 
                                published under clause (i) 
                                unless removed under clause 
                                (i)(II)(aa).
                          (viii) Consultation with relevant 
                        eligible professional organizations and 
                        other relevant stakeholders.--Relevant 
                        eligible professional organizations and 
                        other relevant stakeholders, including 
                        State and national medical societies, 
                        shall be consulted in carrying out this 
                        subparagraph.
                          (ix) Optional application.--The 
                        process under section 1890A is not 
                        required to apply to the selection of 
                        measures under this subparagraph.
          (3) Performance standards.--
                  (A) Establishment.--Under the MIPS, the 
                Secretary shall establish performance standards 
                with respect to measures and activities 
                specified under paragraph (2)(B) for a 
                performance period (as established under 
                paragraph (4)) for a year.
                  (B) Considerations in establishing 
                standards.--In establishing such performance 
                standards with respect to measures and 
                activities specified under paragraph (2)(B), 
                the Secretary shall consider the following:
                          (i) Historical performance standards.
                          (ii) Improvement.
                          (iii) The opportunity for continued 
                        improvement.
          (4) Performance period.--The Secretary shall 
        establish a performance period (or periods) for a year 
        (beginning with 2019). Such performance period (or 
        periods) shall begin and end prior to the beginning of 
        such year and be as close as possible to such year. In 
        this subsection, such performance period (or periods) 
        for a year shall be referred to as the performance 
        period for the year.
          (5) Composite performance score.--
                  (A) In general.--Subject to the succeeding 
                provisions of this paragraph and taking into 
                account, as available and applicable, paragraph 
                (1)(G), the Secretary shall develop a 
                methodology for assessing the total performance 
                of each MIPS eligible professional according to 
                performance standards under paragraph (3) with 
                respect to applicable measures and activities 
                specified in paragraph (2)(B) with respect to 
                each performance category applicable to such 
                professional for a performance period (as 
                established under paragraph (4)) for a year. 
                Using such methodology, the Secretary shall 
                provide for a composite assessment (using a 
                scoring scale of 0 to 100) for each such 
                professional for the performance period for 
                such year. In this subsection such a composite 
                assessment for such a professional with respect 
                to a performance period shall be referred to as 
                the ``composite performance score'' for such 
                professional for such performance period.
                  (B) Incentive to report; encouraging use of 
                certified ehr technology for reporting quality 
                measures.--
                          (i) Incentive to report.--Under the 
                        methodology established under 
                        subparagraph (A), the Secretary shall 
                        provide that in the case of a MIPS 
                        eligible professional who fails to 
                        report on an applicable measure or 
                        activity that is required to be 
                        reported by the professional, the 
                        professional shall be treated as 
                        achieving the lowest potential score 
                        applicable to such measure or activity.
                          (ii) Encouraging use of certified ehr 
                        technology and qualified clinical data 
                        registries for reporting quality 
                        measures.--Under the methodology 
                        established under subparagraph (A), the 
                        Secretary shall--
                                  (I) encourage MIPS eligible 
                                professionals to report on 
                                applicable measures with 
                                respect to the performance 
                                category described in paragraph 
                                (2)(A)(i) through the use of 
                                certified EHR technology and 
                                qualified clinical data 
                                registries; and
                                  (II) with respect to a 
                                performance period, with 
                                respect to a year, for which a 
                                MIPS eligible professional 
                                reports such measures through 
                                the use of such EHR technology, 
                                treat such professional as 
                                satisfying the clinical quality 
                                measures reporting requirement 
                                described in subsection 
                                (o)(2)(A)(iii) for such year.
                  (C) Clinical practice improvement activities 
                performance score.--
                          (i) Rule for certification.--A MIPS 
                        eligible professional who is in a 
                        practice that is certified as a 
                        patient-centered medical home or 
                        comparable specialty practice, as 
                        determined by the Secretary, with 
                        respect to a performance period shall 
                        be given the highest potential score 
                        for the performance category described 
                        in paragraph (2)(A)(iii) for such 
                        period.
                          (ii) APM participation.--
                        Participation by a MIPS eligible 
                        professional in an alternative payment 
                        model (as defined in section 
                        1833(z)(3)(C)) with respect to a 
                        performance period shall earn such 
                        eligible professional a minimum score 
                        of one-half of the highest potential 
                        score for the performance category 
                        described in paragraph (2)(A)(iii) for 
                        such performance period.
                          (iii) Subcategories.--A MIPS eligible 
                        professional shall not be required to 
                        perform activities in each subcategory 
                        under paragraph (2)(B)(iii) or 
                        participate in an alternative payment 
                        model in order to achieve the highest 
                        potential score for the performance 
                        category described in paragraph 
                        (2)(A)(iii).
                  (D) Achievement and improvement.--
                          (i) Taking into account 
                        improvement.--Beginning with the second 
                        year to which the MIPS applies, in 
                        addition to the achievement of a MIPS 
                        eligible professional, if data 
                        sufficient to measure improvement is 
                        available, the methodology developed 
                        under subparagraph (A)--
                                  (I) in the case of the 
                                performance score for the 
                                performance category described 
                                in clauses (i) and (ii) of 
                                paragraph (2)(A), shall take 
                                into account the improvement of 
                                the professional; and
                                  (II) in the case of 
                                performance scores for other 
                                performance categories, may 
                                take into account the 
                                improvement of the 
                                professional.
                          (ii) Assigning higher weight for 
                        achievement.--Subject to clause (i), 
                        under the methodology developed under 
                        subparagraph (A), the Secretary may 
                        assign a higher scoring weight under 
                        subparagraph (F) with respect to the 
                        achievement of a MIPS eligible 
                        professional than with respect to any 
                        improvement of such professional 
                        applied under clause (i) with respect 
                        to a measure, activity, or category 
                        described in paragraph (2).
                  (E) Weights for the performance categories.--
                          (i) In general.--Under the 
                        methodology developed under 
                        subparagraph (A), subject to 
                        subparagraph (F)(i) and clause (ii), 
                        the composite performance score shall 
                        be determined as follows:
                                  (I) Quality.--
                                          (aa) In general.--
                                        Subject to item (bb), 
                                        thirty percent of such 
                                        score shall be based on 
                                        performance with 
                                        respect to the category 
                                        described in clause (i) 
                                        of paragraph (2)(A). In 
                                        applying the previous 
                                        sentence, the Secretary 
                                        shall, as feasible, 
                                        encourage the 
                                        application of outcome 
                                        measures within such 
                                        category.
                                          (bb) First 2 years.--
                                        For the first and 
                                        second years for which 
                                        the MIPS applies to 
                                        payments, the 
                                        percentage applicable 
                                        under item (aa) shall 
                                        be increased in a 
                                        manner such that the 
                                        total percentage points 
                                        of the increase under 
                                        this item for the 
                                        respective year equals 
                                        the total number of 
                                        percentage points by 
                                        which the percentage 
                                        applied under subclause 
                                        (II)(bb) for the 
                                        respective year is less 
                                        than 30 percent.
                                  (II) Resource use.--
                                          (aa) In general.--
                                        Subject to item (bb), 
                                        thirty percent of such 
                                        score shall be based on 
                                        performance with 
                                        respect to the category 
                                        described in clause 
                                        (ii) of paragraph 
                                        (2)(A).
                                          (bb) First 2 years.--
                                        For the first year for 
                                        which the MIPS applies 
                                        to payments, not more 
                                        than 10 percent of such 
                                        score shall be based on 
                                        performance with 
                                        respect to the category 
                                        described in clause 
                                        (ii) of paragraph 
                                        (2)(A). For the second 
                                        year for which the MIPS 
                                        applies to payments, 
                                        not more than 15 
                                        percent of such score 
                                        shall be based on 
                                        performance with 
                                        respect to the category 
                                        described in clause 
                                        (ii) of paragraph 
                                        (2)(A).
                                  (III) Clinical practice 
                                improvement activities.--
                                Fifteen percent of such score 
                                shall be based on performance 
                                with respect to the category 
                                described in clause (iii) of 
                                paragraph (2)(A).
                                  (IV) Meaningful use of 
                                certified ehr technology.--
                                Twenty-five percent of such 
                                score shall be based on 
                                performance with respect to the 
                                category described in clause 
                                (iv) of paragraph (2)(A).
                          (ii) Authority to adjust percentages 
                        in case of high ehr meaningful use 
                        adoption.--In any year in which the 
                        Secretary estimates that the proportion 
                        of eligible professionals (as defined 
                        in subsection (o)(5)) who are 
                        meaningful EHR users (as determined 
                        under subsection (o)(2)) is 75 percent 
                        or greater, the Secretary may reduce 
                        the percent applicable under clause 
                        (i)(IV), but not below 15 percent. If 
                        the Secretary makes such reduction for 
                        a year, subject to subclauses (I)(bb) 
                        and (II)(bb) of clause (i), the 
                        percentages applicable under one or 
                        more of subclauses (I), (II), and (III) 
                        of clause (i) for such year shall be 
                        increased in a manner such that the 
                        total percentage points of the increase 
                        under this clause for such year equals 
                        the total number of percentage points 
                        reduced under the preceding sentence 
                        for such year.
                  (F) Certain flexibility for weighting 
                performance categories, measures, and 
                activities.--Under the methodology under 
                subparagraph (A), if there are not sufficient 
                measures and activities (described in paragraph 
                (2)(B)) applicable and available to each type 
                of eligible professional involved, the 
                Secretary shall assign different scoring 
                weights (including a weight of 0)--
                          (i) which may vary from the scoring 
                        weights specified in subparagraph (E), 
                        for each performance category based on 
                        the extent to which the category is 
                        applicable to the type of eligible 
                        professional involved; and
                          (ii) for each measure and activity 
                        specified under paragraph (2)(B) with 
                        respect to each such category based on 
                        the extent to which the measure or 
                        activity is applicable and available to 
                        the type of eligible professional 
                        involved.
                  (G) Resource use.--Analysis of the 
                performance category described in paragraph 
                (2)(A)(ii) shall include results from the 
                methodology described in subsection (r)(5), as 
                appropriate.
                  (H) Inclusion of quality measure data from 
                other payers.--In applying subsections (k), 
                (m), and (p) with respect to measures described 
                in paragraph (2)(B)(i), analysis of the 
                performance category described in paragraph 
                (2)(A)(i) may include data submitted by MIPS 
                eligible professionals with respect to items 
                and services furnished to individuals who are 
                not individuals entitled to benefits under part 
                A or enrolled under part B.
                  (I) Use of voluntary virtual groups for 
                certain assessment purposes.--
                          (i) In general.--In the case of MIPS 
                        eligible professionals electing to be a 
                        virtual group under clause (ii) with 
                        respect to a performance period for a 
                        year, for purposes of applying the 
                        methodology under subparagraph (A) with 
                        respect to the performance categories 
                        described in clauses (i) and (ii) of 
                        paragraph (2)(A)--
                                  (I) the assessment of 
                                performance provided under such 
                                methodology with respect to 
                                such performance categories 
                                that is to be applied to each 
                                such professional in such group 
                                for such performance period 
                                shall be with respect to the 
                                combined performance of all 
                                such professionals in such 
                                group for such period; and
                                  (II) with respect to the 
                                composite performance score 
                                provided under this paragraph 
                                for such performance period for 
                                each such MIPS eligible 
                                professional in such virtual 
                                group, the components of the 
                                composite performance score 
                                that assess performance with 
                                respect to such performance 
                                categories shall be based on 
                                the assessment of the combined 
                                performance under subclause (I) 
                                for such performance categories 
                                and performance period.
                          (ii) Election of practices to be a 
                        virtual group.--The Secretary shall, in 
                        accordance with the requirements under 
                        clause (iii), establish and have in 
                        place a process to allow an individual 
                        MIPS eligible professional or a group 
                        practice consisting of not more than 10 
                        MIPS eligible professionals to elect, 
                        with respect to a performance period 
                        for a year to be a virtual group under 
                        this subparagraph with at least one 
                        other such individual MIPS eligible 
                        professional or group practice. Such a 
                        virtual group may be based on 
                        appropriate classifications of 
                        providers, such as by geographic areas 
                        or by provider specialties defined by 
                        nationally recognized specialty boards 
                        of certification or equivalent 
                        certification boards.
                          (iii) Requirements.--The requirements 
                        for the process under clause (ii) 
                        shall--
                                  (I) provide that an election 
                                under such clause, with respect 
                                to a performance period, shall 
                                be made before the beginning of 
                                such performance period and may 
                                not be changed during such 
                                performance period;
                                  (II) provide that an 
                                individual MIPS eligible 
                                professional and a group 
                                practice described in clause 
                                (ii) may elect to be in no more 
                                than one virtual group for a 
                                performance period and that, in 
                                the case of such a group 
                                practice that elects to be in 
                                such virtual group for such 
                                performance period, such 
                                election applies to all MIPS 
                                eligible professionals in such 
                                group practice;
                                  (III) provide that a virtual 
                                group be a combination of tax 
                                identification numbers;
                                  (IV) provide for formal 
                                written agreements among MIPS 
                                eligible professionals electing 
                                to be a virtual group under 
                                this subparagraph; and
                                  (V) include such other 
                                requirements as the Secretary 
                                determines appropriate.
          (6) MIPS payments.--
                  (A) MIPS adjustment factor.--Taking into 
                account paragraph (1)(G), the Secretary shall 
                specify a MIPS adjustment factor for each MIPS 
                eligible professional for a year. Such MIPS 
                adjustment factor for a MIPS eligible 
                professional for a year shall be in the form of 
                a percent and shall be determined--
                          (i) by comparing the composite 
                        performance score of the eligible 
                        professional for such year to the 
                        performance threshold established under 
                        subparagraph (D)(i) for such year;
                          (ii) in a manner such that the 
                        adjustment factors specified under this 
                        subparagraph for a year result in 
                        differential payments under this 
                        paragraph reflecting that--
                                  (I) MIPS eligible 
                                professionals with composite 
                                performance scores for such 
                                year at or above such 
                                performance threshold for such 
                                year receive zero or positive 
                                payment adjustment factors for 
                                such year in accordance with 
                                clause (iii), with such 
                                professionals having higher 
                                composite performance scores 
                                receiving higher adjustment 
                                factors; and
                                  (II) MIPS eligible 
                                professionals with composite 
                                performance scores for such 
                                year below such performance 
                                threshold for such year receive 
                                negative payment adjustment 
                                factors for such year in 
                                accordance with clause (iv), 
                                with such professionals having 
                                lower composite performance 
                                scores receiving lower 
                                adjustment factors;
                          (iii) in a manner such that MIPS 
                        eligible professionals with composite 
                        scores described in clause (ii)(I) for 
                        such year, subject to clauses (i) and 
                        (ii) of subparagraph (F), receive a 
                        zero or positive adjustment factor on a 
                        linear sliding scale such that an 
                        adjustment factor of 0 percent is 
                        assigned for a score at the performance 
                        threshold and an adjustment factor of 
                        the applicable percent specified in 
                        subparagraph (B) is assigned for a 
                        score of 100; and
                          (iv) in a manner such that--
                                  (I) subject to subclause 
                                (II), MIPS eligible 
                                professionals with composite 
                                performance scores described in 
                                clause (ii)(II) for such year 
                                receive a negative payment 
                                adjustment factor on a linear 
                                sliding scale such that an 
                                adjustment factor of 0 percent 
                                is assigned for a score at the 
                                performance threshold and an 
                                adjustment factor of the 
                                negative of the applicable 
                                percent specified in 
                                subparagraph (B) is assigned 
                                for a score of 0; and
                                  (II) MIPS eligible 
                                professionals with composite 
                                performance scores that are 
                                equal to or greater than 0, but 
                                not greater than \1/4\ of the 
                                performance threshold specified 
                                under subparagraph (D)(i) for 
                                such year, receive a negative 
                                payment adjustment factor that 
                                is equal to the negative of the 
                                applicable percent specified in 
                                subparagraph (B) for such year.
                  (B) Applicable percent defined.--For purposes 
                of this paragraph, the term ``applicable 
                percent'' means--
                          (i) for 2019, 4 percent;
                          (ii) for 2020, 5 percent;
                          (iii) for 2021, 7 percent; and
                          (iv) for 2022 and subsequent years, 9 
                        percent.
                  (C) Additional mips adjustment factors for 
                exceptional performance.--For 2019 and each 
                subsequent year through 2024, in the case of a 
                MIPS eligible professional with a composite 
                performance score for a year at or above the 
                additional performance threshold under 
                subparagraph (D)(ii) for such year, in addition 
                to the MIPS adjustment factor under 
                subparagraph (A) for the eligible professional 
                for such year, subject to subparagraph (F)(iv), 
                the Secretary shall specify an additional 
                positive MIPS adjustment factor for such 
                professional and year. Such additional MIPS 
                adjustment factors shall be in the form of a 
                percent and determined by the Secretary in a 
                manner such that professionals having higher 
                composite performance scores above the 
                additional performance threshold receive higher 
                additional MIPS adjustment factors.
                  (D) Establishment of performance 
                thresholds.--
                          (i) Performance threshold.--For each 
                        year of the MIPS, the Secretary shall 
                        compute a performance threshold with 
                        respect to which the composite 
                        performance score of MIPS eligible 
                        professionals shall be compared for 
                        purposes of determining adjustment 
                        factors under subparagraph (A) that are 
                        positive, negative, and zero. Such 
                        performance threshold for a year shall 
                        be the mean or median (as selected by 
                        the Secretary) of the composite 
                        performance scores for all MIPS 
                        eligible professionals with respect to 
                        a prior period specified by the 
                        Secretary. The Secretary may reassess 
                        the selection of the mean or median 
                        under the previous sentence every 3 
                        years.
                          (ii) Additional performance threshold 
                        for exceptional performance.--In 
                        addition to the performance threshold 
                        under clause (i), for each year of the 
                        MIPS, the Secretary shall compute an 
                        additional performance threshold for 
                        purposes of determining the additional 
                        MIPS adjustment factors under 
                        subparagraph (C). For each such year, 
                        the Secretary shall apply either of the 
                        following methods for computing such 
                        additional performance threshold for 
                        such a year:
                                  (I) The threshold shall be 
                                the score that is equal to the 
                                25th percentile of the range of 
                                possible composite performance 
                                scores above the performance 
                                threshold determined under 
                                clause (i).
                                  (II) The threshold shall be 
                                the score that is equal to the 
                                25th percentile of the actual 
                                composite performance scores 
                                for MIPS eligible professionals 
                                with composite performance 
                                scores at or above the 
                                performance threshold with 
                                respect to the prior period 
                                described in clause (i).
                          (iii) Special rule for initial 2 
                        years.--With respect to each of the 
                        first two years to which the MIPS 
                        applies, the Secretary shall, prior to 
                        the performance period for such years, 
                        establish a performance threshold for 
                        purposes of determining MIPS adjustment 
                        factors under subparagraph (A) and a 
                        threshold for purposes of determining 
                        additional MIPS adjustment factors 
                        under subparagraph (C). Each such 
                        performance threshold shall--
                                  (I) be based on a period 
                                prior to such performance 
                                periods; and
                                  (II) take into account--
                                          (aa) data available 
                                        with respect to 
                                        performance on measures 
                                        and activities that may 
                                        be used under the 
                                        performance categories 
                                        under subparagraph 
                                        (2)(B); and
                                          (bb) other factors 
                                        determined appropriate 
                                        by the Secretary.
                  (E) Application of mips adjustment factors.--
                In the case of items and services furnished by 
                a MIPS eligible professional during a year 
                (beginning with 2019), the amount otherwise 
                paid under this part with respect to such items 
                and services and MIPS eligible professional for 
                such year, shall be multiplied by--
                          (i) 1, plus
                          (ii) the sum of--
                                  (I) the MIPS adjustment 
                                factor determined under 
                                subparagraph (A) divided by 
                                100, and
                                  (II) as applicable, the 
                                additional MIPS adjustment 
                                factor determined under 
                                subparagraph (C) divided by 
                                100.
                  (F) Aggregate application of mips adjustment 
                factors.--
                          (i) Application of scaling factor.--
                                  (I) In general.--With respect 
                                to positive MIPS adjustment 
                                factors under subparagraph 
                                (A)(ii)(I) for eligible 
                                professionals whose composite 
                                performance score is above the 
                                performance threshold under 
                                subparagraph (D)(i) for such 
                                year, subject to subclause 
                                (II), the Secretary shall 
                                increase or decrease such 
                                adjustment factors by a scaling 
                                factor in order to ensure that 
                                the budget neutrality 
                                requirement of clause (ii) is 
                                met.
                                  (II) Scaling factor limit.--
                                In no case may the scaling 
                                factor applied under this 
                                clause exceed 3.0.
                          (ii) Budget neutrality requirement.--
                                  (I) In general.--Subject to 
                                clause (iii), the Secretary 
                                shall ensure that the estimated 
                                amount described in subclause 
                                (II) for a year is equal to the 
                                estimated amount described in 
                                subclause (III) for such year.
                                  (II) Aggregate increases.--
                                The amount described in this 
                                subclause is the estimated 
                                increase in the aggregate 
                                allowed charges resulting from 
                                the application of positive 
                                MIPS adjustment factors under 
                                subparagraph (A) (after 
                                application of the scaling 
                                factor described in clause (i)) 
                                to MIPS eligible professionals 
                                whose composite performance 
                                score for a year is above the 
                                performance threshold under 
                                subparagraph (D)(i) for such 
                                year.
                                  (III) Aggregate decreases.--
                                The amount described in this 
                                subclause is the estimated 
                                decrease in the aggregate 
                                allowed charges resulting from 
                                the application of negative 
                                MIPS adjustment factors under 
                                subparagraph (A) to MIPS 
                                eligible professionals whose 
                                composite performance score for 
                                a year is below the performance 
                                threshold under subparagraph 
                                (D)(i) for such year.
                          (iii) Exceptions.--
                                  (I) In the case that all MIPS 
                                eligible professionals receive 
                                composite performance scores 
                                for a year that are below the 
                                performance threshold under 
                                subparagraph (D)(i) for such 
                                year, the negative MIPS 
                                adjustment factors under 
                                subparagraph (A) shall apply 
                                with respect to such MIPS 
                                eligible professionals and the 
                                budget neutrality requirement 
                                of clause (ii) and the 
                                additional adjustment factors 
                                under clause (iv) shall not 
                                apply for such year.
                                  (II) In the case that, with 
                                respect to a year, the 
                                application of clause (i) 
                                results in a scaling factor 
                                equal to the maximum scaling 
                                factor specified in clause 
                                (i)(II), such scaling factor 
                                shall apply and the budget 
                                neutrality requirement of 
                                clause (ii) shall not apply for 
                                such year.
                          (iv) Additional incentive payment 
                        adjustments.--
                                  (I) In general.--Subject to 
                                subclause (II), in specifying 
                                the MIPS additional adjustment 
                                factors under subparagraph (C) 
                                for each applicable MIPS 
                                eligible professional for a 
                                year, the Secretary shall 
                                ensure that the estimated 
                                aggregate increase in payments 
                                under this part resulting from 
                                the application of such 
                                additional adjustment factors 
                                for MIPS eligible professionals 
                                in a year shall be equal (as 
                                estimated by the Secretary) to 
                                $500,000,000 for each year 
                                beginning with 2019 and ending 
                                with 2024.
                                  (II) Limitation on additional 
                                incentive payment 
                                adjustments.--The MIPS 
                                additional adjustment factor 
                                under subparagraph (C) for a 
                                year for an applicable MIPS 
                                eligible professional whose 
                                composite performance score is 
                                above the additional 
                                performance threshold under 
                                subparagraph (D)(ii) for such 
                                year shall not exceed 10 
                                percent. The application of the 
                                previous sentence may result in 
                                an aggregate amount of 
                                additional incentive payments 
                                that are less than the amount 
                                specified in subclause (I).
          (7) Announcement of result of adjustments.--Under the 
        MIPS, the Secretary shall, not later than 30 days prior 
        to January 1 of the year involved, make available to 
        MIPS eligible professionals the MIPS adjustment factor 
        (and, as applicable, the additional MIPS adjustment 
        factor) under paragraph (6) applicable to the eligible 
        professional for items and services furnished by the 
        professional for such year. The Secretary may include 
        such information in the confidential feedback under 
        paragraph (12).
          (8) No effect in subsequent years.--The MIPS 
        adjustment factors and additional MIPS adjustment 
        factors under paragraph (6) shall apply only with 
        respect to the year involved, and the Secretary shall 
        not take into account such adjustment factors in making 
        payments to a MIPS eligible professional under this 
        part in a subsequent year.
          (9) Public reporting.--
                  (A) In general.--The Secretary shall, in an 
                easily understandable format, make available on 
                the Physician Compare Internet website of the 
                Centers for Medicare & Medicaid Services the 
                following:
                          (i) Information regarding the 
                        performance of MIPS eligible 
                        professionals under the MIPS, which--
                                  (I) shall include the 
                                composite score for each such 
                                MIPS eligible professional and 
                                the performance of each such 
                                MIPS eligible professional with 
                                respect to each performance 
                                category; and
                                  (II) may include the 
                                performance of each such MIPS 
                                eligible professional with 
                                respect to each measure or 
                                activity specified in paragraph 
                                (2)(B).
                          (ii) The names of eligible 
                        professionals in eligible alternative 
                        payment models (as defined in section 
                        1833(z)(3)(D)) and, to the extent 
                        feasible, the names of such eligible 
                        alternative payment models and 
                        performance of such models.
                  (B) Disclosure.--The information made 
                available under this paragraph shall indicate, 
                where appropriate, that publicized information 
                may not be representative of the eligible 
                professional's entire patient population, the 
                variety of services furnished by the eligible 
                professional, or the health conditions of 
                individuals treated.
                  (C) Opportunity to review and submit 
                corrections.--The Secretary shall provide for 
                an opportunity for a professional described in 
                subparagraph (A) to review, and submit 
                corrections for, the information to be made 
                public with respect to the professional under 
                such subparagraph prior to such information 
                being made public.
                  (D) Aggregate information.--The Secretary 
                shall periodically post on the Physician 
                Compare Internet website aggregate information 
                on the MIPS, including the range of composite 
                scores for all MIPS eligible professionals and 
                the range of the performance of all MIPS 
                eligible professionals with respect to each 
                performance category.
          (10) Consultation.--The Secretary shall consult with 
        stakeholders in carrying out the MIPS, including for 
        the identification of measures and activities under 
        paragraph (2)(B) and the methodologies developed under 
        paragraphs (5)(A) and (6) and regarding the use of 
        qualified clinical data registries. Such consultation 
        shall include the use of a request for information or 
        other mechanisms determined appropriate.
          (11) Technical assistance to small practices and 
        practices in health professional shortage areas.--
                  (A) In general.--The Secretary shall enter 
                into contracts or agreements with appropriate 
                entities (such as quality improvement 
                organizations, regional extension centers (as 
                described in section 3012(c) of the Public 
                Health Service Act), or regional health 
                collaboratives) to offer guidance and 
                assistance to MIPS eligible professionals in 
                practices of 15 or fewer professionals (with 
                priority given to such practices located in 
                rural areas, health professional shortage areas 
                (as designated under in section 332(a)(1)(A) of 
                such Act), and medically underserved areas, and 
                practices with low composite scores) with 
                respect to--
                          (i) the performance categories 
                        described in clauses (i) through (iv) 
                        of paragraph (2)(A); or
                          (ii) how to transition to the 
                        implementation of and participation in 
                        an alternative payment model as 
                        described in section 1833(z)(3)(C).
                  (B) Funding for technical assistance.--For 
                purposes of implementing subparagraph (A), the 
                Secretary shall provide for the transfer from 
                the Federal Supplementary Medical Insurance 
                Trust Fund established under section 1841 to 
                the Centers for Medicare & Medicaid Services 
                Program Management Account of $20,000,000 for 
                each of fiscal years 2016 through 2020. Amounts 
                transferred under this subparagraph for a 
                fiscal year shall be available until expended.
          (12) Feedback and information to improve 
        performance.--
                  (A) Performance feedback.--
                          (i) In general.--Beginning July 1, 
                        2017, the Secretary--
                                  (I) shall make available 
                                timely (such as quarterly) 
                                confidential feedback to MIPS 
                                eligible professionals on the 
                                performance of such 
                                professionals with respect to 
                                the performance categories 
                                under clauses (i) and (ii) of 
                                paragraph (2)(A); and
                                  (II) may make available 
                                confidential feedback to such 
                                professionals on the 
                                performance of such 
                                professionals with respect to 
                                the performance categories 
                                under clauses (iii) and (iv) of 
                                such paragraph.
                          (ii) Mechanisms.--The Secretary may 
                        use one or more mechanisms to make 
                        feedback available under clause (i), 
                        which may include use of a web-based 
                        portal or other mechanisms determined 
                        appropriate by the Secretary. With 
                        respect to the performance category 
                        described in paragraph (2)(A)(i), 
                        feedback under this subparagraph shall, 
                        to the extent an eligible professional 
                        chooses to participate in a data 
                        registry for purposes of this 
                        subsection (including registries under 
                        subsections (k) and (m)), be provided 
                        based on performance on quality 
                        measures reported through the use of 
                        such registries. With respect to any 
                        other performance category described in 
                        paragraph (2)(A), the Secretary shall 
                        encourage provision of feedback through 
                        qualified clinical data registries as 
                        described in subsection (m)(3)(E)).
                          (iii) Use of data.--For purposes of 
                        clause (i), the Secretary may use data, 
                        with respect to a MIPS eligible 
                        professional, from periods prior to the 
                        current performance period and may use 
                        rolling periods in order to make 
                        illustrative calculations about the 
                        performance of such professional.
                          (iv) Disclosure exemption.--Feedback 
                        made available under this subparagraph 
                        shall be exempt from disclosure under 
                        section 552 of title 5, United States 
                        Code.
                          (v) Receipt of information.--The 
                        Secretary may use the mechanisms 
                        established under clause (ii) to 
                        receive information from professionals, 
                        such as information with respect to 
                        this subsection.
                  (B) Additional information.--
                          (i) In general.--Beginning July 1, 
                        2018, the Secretary shall make 
                        available to MIPS eligible 
                        professionals information, with respect 
                        to individuals who are patients of such 
                        MIPS eligible professionals, about 
                        items and services for which payment is 
                        made under this title that are 
                        furnished to such individuals by other 
                        suppliers and providers of services, 
                        which may include information described 
                        in clause (ii). Such information may be 
                        made available under the previous 
                        sentence to such MIPS eligible 
                        professionals by mechanisms determined 
                        appropriate by the Secretary, which may 
                        include use of a web-based portal. Such 
                        information may be made available in 
                        accordance with the same or similar 
                        terms as data are made available to 
                        accountable care organizations 
                        participating in the shared savings 
                        program under section 1899.
                          (ii) Type of information.--For 
                        purposes of clause (i), the information 
                        described in this clause, is the 
                        following:
                                  (I) With respect to selected 
                                items and services (as 
                                determined appropriate by the 
                                Secretary) for which payment is 
                                made under this title and that 
                                are furnished to individuals, 
                                who are patients of a MIPS 
                                eligible professional, by 
                                another supplier or provider of 
                                services during the most recent 
                                period for which data are 
                                available (such as the most 
                                recent three-month period), 
                                such as the name of such 
                                providers furnishing such items 
                                and services to such patients 
                                during such period, the types 
                                of such items and services so 
                                furnished, and the dates such 
                                items and services were so 
                                furnished.
                                  (II) Historical data, such as 
                                averages and other measures of 
                                the distribution if 
                                appropriate, of the total, and 
                                components of, allowed charges 
                                (and other figures as 
                                determined appropriate by the 
                                Secretary).
          (13) Review.--
                  (A) Targeted review.--The Secretary shall 
                establish a process under which a MIPS eligible 
                professional may seek an informal review of the 
                calculation of the MIPS adjustment factor (or 
                factors) applicable to such eligible 
                professional under this subsection for a year. 
                The results of a review conducted pursuant to 
                the previous sentence shall not be taken into 
                account for purposes of paragraph (6) with 
                respect to a year (other than with respect to 
                the calculation of such eligible professional's 
                MIPS adjustment factor for such year or 
                additional MIPS adjustment factor for such 
                year) after the factors determined in 
                subparagraph (A) and subparagraph (C) of such 
                paragraph have been determined for such year.
                  (B) Limitation.--Except as provided for in 
                subparagraph (A), there shall be no 
                administrative or judicial review under section 
                1869, section 1878, or otherwise of the 
                following:
                          (i) The methodology used to determine 
                        the amount of the MIPS adjustment 
                        factor under paragraph (6)(A) and the 
                        amount of the additional MIPS 
                        adjustment factor under paragraph 
                        (6)(C) and the determination of such 
                        amounts.
                          (ii) The establishment of the 
                        performance standards under paragraph 
                        (3) and the performance period under 
                        paragraph (4).
                          (iii) The identification of measures 
                        and activities specified under 
                        paragraph (2)(B) and information made 
                        public or posted on the Physician 
                        Compare Internet website of the Centers 
                        for Medicare & Medicaid Services under 
                        paragraph (9).
                          (iv) The methodology developed under 
                        paragraph (5) that is used to calculate 
                        performance scores and the calculation 
                        of such scores, including the weighting 
                        of measures and activities under such 
                        methodology.
  (r) Collaborating With the Physician, Practitioner, and Other 
Stakeholder Communities To Improve Resource Use Measurement.--
          (1) In general.--In order to involve the physician, 
        practitioner, and other stakeholder communities in 
        enhancing the infrastructure for resource use 
        measurement, including for purposes of the Merit-based 
        Incentive Payment System under subsection (q) and 
        alternative payment models under section 1833(z), the 
        Secretary shall undertake the steps described in the 
        succeeding provisions of this subsection.
          (2) Development of care episode and patient condition 
        groups and classification codes.--
                  (A) In general.--In order to classify similar 
                patients into care episode groups and patient 
                condition groups, the Secretary shall undertake 
                the steps described in the succeeding 
                provisions of this paragraph.
                  (B) Public availability of existing efforts 
                to design an episode grouper.--Not later than 
                180 days after the date of the enactment of 
                this subsection, the Secretary shall post on 
                the Internet website of the Centers for 
                Medicare & Medicaid Services a list of the 
                episode groups developed pursuant to subsection 
                (n)(9)(A) and related descriptive information.
                  (C) Stakeholder input.--The Secretary shall 
                accept, through the date that is 120 days after 
                the day the Secretary posts the list pursuant 
                to subparagraph (B), suggestions from physician 
                specialty societies, applicable practitioner 
                organizations, and other stakeholders for 
                episode groups in addition to those posted 
                pursuant to such subparagraph, and specific 
                clinical criteria and patient characteristics 
                to classify patients into--
                          (i) care episode groups; and
                          (ii) patient condition groups.
                  (D) Development of proposed classification 
                codes.--
                          (i) In general.--Taking into account 
                        the information described in 
                        subparagraph (B) and the information 
                        received under subparagraph (C), the 
                        Secretary shall--
                                  (I) establish care episode 
                                groups and patient condition 
                                groups, which account for a 
                                target of an estimated \1/2\ of 
                                expenditures under parts A and 
                                B (with such target increasing 
                                over time as appropriate); and
                                  (II) assign codes to such 
                                groups.
                          (ii) Care episode groups.--In 
                        establishing the care episode groups 
                        under clause (i), the Secretary shall 
                        take into account--
                                  (I) the patient's clinical 
                                problems at the time items and 
                                services are furnished during 
                                an episode of care, such as the 
                                clinical conditions or 
                                diagnoses, whether or not 
                                inpatient hospitalization 
                                occurs, and the principal 
                                procedures or services 
                                furnished; and
                                  (II) other factors determined 
                                appropriate by the Secretary.
                          (iii) Patient condition groups.--In 
                        establishing the patient condition 
                        groups under clause (i), the Secretary 
                        shall take into account--
                                  (I) the patient's clinical 
                                history at the time of a 
                                medical visit, such as the 
                                patient's combination of 
                                chronic conditions, current 
                                health status, and recent 
                                significant history (such as 
                                hospitalization and major 
                                surgery during a previous 
                                period, such as 3 months); and
                                  (II) other factors determined 
                                appropriate by the Secretary, 
                                such as eligibility status 
                                under this title (including 
                                eligibility under section 
                                226(a), 226(b), or 226A, and 
                                dual eligibility under this 
                                title and title XIX).
                  (E) Draft care episode and patient condition 
                groups and classification codes.--Not later 
                than 270 days after the end of the comment 
                period described in subparagraph (C), the 
                Secretary shall post on the Internet website of 
                the Centers for Medicare & Medicaid Services a 
                draft list of the care episode and patient 
                condition codes established under subparagraph 
                (D) (and the criteria and characteristics 
                assigned to such code).
                  (F) Solicitation of input.--The Secretary 
                shall seek, through the date that is 120 days 
                after the Secretary posts the list pursuant to 
                subparagraph (E), comments from physician 
                specialty societies, applicable practitioner 
                organizations, and other stakeholders, 
                including representatives of individuals 
                entitled to benefits under part A or enrolled 
                under this part, regarding the care episode and 
                patient condition groups (and codes) posted 
                under subparagraph (E). In seeking such 
                comments, the Secretary shall use one or more 
                mechanisms (other than notice and comment 
                rulemaking) that may include use of open door 
                forums, town hall meetings, or other 
                appropriate mechanisms.
                  (G) Operational list of care episode and 
                patient condition groups and codes.--Not later 
                than 270 days after the end of the comment 
                period described in subparagraph (F), taking 
                into account the comments received under such 
                subparagraph, the Secretary shall post on the 
                Internet website of the Centers for Medicare & 
                Medicaid Services an operational list of care 
                episode and patient condition codes (and the 
                criteria and characteristics assigned to such 
                code).
                  (H) Subsequent revisions.--Not later than 
                November 1 of each year (beginning with 2018), 
                the Secretary shall, through rulemaking, make 
                revisions to the operational lists of care 
                episode and patient condition codes as the 
                Secretary determines may be appropriate. Such 
                revisions may be based on experience, new 
                information developed pursuant to subsection 
                (n)(9)(A), and input from the physician 
                specialty societies, applicable practitioner 
                organizations, and other stakeholders, 
                including representatives of individuals 
                entitled to benefits under part A or enrolled 
                under this part.
          (3) Attribution of patients to physicians or 
        practitioners.--
                  (A) In general.--In order to facilitate the 
                attribution of patients and episodes (in whole 
                or in part) to one or more physicians or 
                applicable practitioners furnishing items and 
                services, the Secretary shall undertake the 
                steps described in the succeeding provisions of 
                this paragraph.
                  (B) Development of patient relationship 
                categories and codes.--The Secretary shall 
                develop patient relationship categories and 
                codes that define and distinguish the 
                relationship and responsibility of a physician 
                or applicable practitioner with a patient at 
                the time of furnishing an item or service. Such 
                patient relationship categories shall include 
                different relationships of the physician or 
                applicable practitioner to the patient (and the 
                codes may reflect combinations of such 
                categories), such as a physician or applicable 
                practitioner who--
                          (i) considers themself to have the 
                        primary responsibility for the general 
                        and ongoing care for the patient over 
                        extended periods of time;
                          (ii) considers themself to be the 
                        lead physician or practitioner and who 
                        furnishes items and services and 
                        coordinates care furnished by other 
                        physicians or practitioners for the 
                        patient during an acute episode;
                          (iii) furnishes items and services to 
                        the patient on a continuing basis 
                        during an acute episode of care, but in 
                        a supportive rather than a lead role;
                          (iv) furnishes items and services to 
                        the patient on an occasional basis, 
                        usually at the request of another 
                        physician or practitioner; or
                          (v) furnishes items and services only 
                        as ordered by another physician or 
                        practitioner.
                  (C) Draft list of patient relationship 
                categories and codes.--Not later than one year 
                after the date of the enactment of this 
                subsection, the Secretary shall post on the 
                Internet website of the Centers for Medicare & 
                Medicaid Services a draft list of the patient 
                relationship categories and codes developed 
                under subparagraph (B).
                  (D) Stakeholder input.--The Secretary shall 
                seek, through the date that is 120 days after 
                the Secretary posts the list pursuant to 
                subparagraph (C), comments from physician 
                specialty societies, applicable practitioner 
                organizations, and other stakeholders, 
                including representatives of individuals 
                entitled to benefits under part A or enrolled 
                under this part, regarding the patient 
                relationship categories and codes posted under 
                subparagraph (C). In seeking such comments, the 
                Secretary shall use one or more mechanisms 
                (other than notice and comment rulemaking) that 
                may include open door forums, town hall 
                meetings, web-based forums, or other 
                appropriate mechanisms.
                  (E) Operational list of patient relationship 
                categories and codes.--Not later than 240 days 
                after the end of the comment period described 
                in subparagraph (D), taking into account the 
                comments received under such subparagraph, the 
                Secretary shall post on the Internet website of 
                the Centers for Medicare & Medicaid Services an 
                operational list of patient relationship 
                categories and codes.
                  (F) Subsequent revisions.--Not later than 
                November 1 of each year (beginning with 2018), 
                the Secretary shall, through rulemaking, make 
                revisions to the operational list of patient 
                relationship categories and codes as the 
                Secretary determines appropriate. Such 
                revisions may be based on experience, new 
                information developed pursuant to subsection 
                (n)(9)(A), and input from the physician 
                specialty societies, applicable practitioner 
                organizations, and other stakeholders, 
                including representatives of individuals 
                entitled to benefits under part A or enrolled 
                under this part.
          (4) Reporting of information for resource use 
        measurement.--Claims submitted for items and services 
        furnished by a physician or applicable practitioner on 
        or after January 1, 2018, shall, as determined 
        appropriate by the Secretary, include--
                  (A) applicable codes established under 
                paragraphs (2) and (3); and
                  (B) the national provider identifier of the 
                ordering physician or applicable practitioner 
                (if different from the billing physician or 
                applicable practitioner).
          (5) Methodology for resource use analysis.--
                  (A) In general.--In order to evaluate the 
                resources used to treat patients (with respect 
                to care episode and patient condition groups), 
                the Secretary shall, as the Secretary 
                determines appropriate--
                          (i) use the patient relationship 
                        codes reported on claims pursuant to 
                        paragraph (4) to attribute patients (in 
                        whole or in part) to one or more 
                        physicians and applicable 
                        practitioners;
                          (ii) use the care episode and patient 
                        condition codes reported on claims 
                        pursuant to paragraph (4) as a basis to 
                        compare similar patients and care 
                        episodes and patient condition groups; 
                        and
                          (iii) conduct an analysis of resource 
                        use (with respect to care episodes and 
                        patient condition groups of such 
                        patients).
                  (B) Analysis of patients of physicians and 
                practitioners.--In conducting the analysis 
                described in subparagraph (A)(iii) with respect 
                to patients attributed to physicians and 
                applicable practitioners, the Secretary shall, 
                as feasible--
                          (i) use the claims data experience of 
                        such patients by patient condition 
                        codes during a common period, such as 
                        12 months; and
                          (ii) use the claims data experience 
                        of such patients by care episode 
                        codes--
                                  (I) in the case of episodes 
                                without a hospitalization, 
                                during periods of time (such as 
                                the number of days) determined 
                                appropriate by the Secretary; 
                                and
                                  (II) in the case of episodes 
                                with a hospitalization, during 
                                periods of time (such as the 
                                number of days) before, during, 
                                and after the hospitalization.
                  (C) Measurement of resource use.--In 
                measuring such resource use, the Secretary--
                          (i) shall use per patient total 
                        allowed charges for all services under 
                        part A and this part (and, if the 
                        Secretary determines appropriate, part 
                        D) for the analysis of patient resource 
                        use, by care episode codes and by 
                        patient condition codes; and
                          (ii) may, as determined appropriate, 
                        use other measures of allowed charges 
                        (such as subtotals for categories of 
                        items and services) and measures of 
                        utilization of items and services (such 
                        as frequency of specific items and 
                        services and the ratio of specific 
                        items and services among attributed 
                        patients or episodes).
                  (D) Stakeholder input.--The Secretary shall 
                seek comments from the physician specialty 
                societies, applicable practitioner 
                organizations, and other stakeholders, 
                including representatives of individuals 
                entitled to benefits under part A or enrolled 
                under this part, regarding the resource use 
                methodology established pursuant to this 
                paragraph. In seeking comments the Secretary 
                shall use one or more mechanisms (other than 
                notice and comment rulemaking) that may include 
                open door forums, town hall meetings, web-based 
                forums, or other appropriate mechanisms.
          (6) Implementation.--To the extent that the Secretary 
        contracts with an entity to carry out any part of the 
        provisions of this subsection, the Secretary may not 
        contract with an entity or an entity with a subcontract 
        if the entity or subcontracting entity currently makes 
        recommendations to the Secretary on relative values for 
        services under the fee schedule for physicians' 
        services under this section.
          (7) Limitation.--There shall be no administrative or 
        judicial review under section 1869, section 1878, or 
        otherwise of--
                  (A) care episode and patient condition groups 
                and codes established under paragraph (2);
                  (B) patient relationship categories and codes 
                established under paragraph (3); and
                  (C) measurement of, and analyses of resource 
                use with respect to, care episode and patient 
                condition codes and patient relationship codes 
                pursuant to paragraph (5).
          (8) Administration.--Chapter 35 of title 44, United 
        States Code, shall not apply to this section.
          (9) Definitions.--In this subsection:
                  (A) Physician.--The term ``physician'' has 
                the meaning given such term in section 
                1861(r)(1).
                  (B) Applicable practitioner.--The term 
                ``applicable practitioner'' means--
                          (i) a physician assistant, nurse 
                        practitioner, and clinical nurse 
                        specialist (as such terms are defined 
                        in section 1861(aa)(5)), and a 
                        certified registered nurse anesthetist 
                        (as defined in section 1861(bb)(2)); 
                        and
                          (ii) beginning January 1, 2019, such 
                        other eligible professionals (as 
                        defined in subsection (k)(3)(B)) as 
                        specified by the Secretary.
          (10) Clarification.--The provisions of sections 
        1890(b)(7) and 1890A shall not apply to this 
        subsection.
  (s) Priorities and Funding for Measure Development.--
          (1) Plan identifying measure development priorities 
        and timelines.--
                  (A) Draft measure development plan.--Not 
                later than January 1, 2016, the Secretary shall 
                develop, and post on the Internet website of 
                the Centers for Medicare & Medicaid Services, a 
                draft plan for the development of quality 
                measures for application under the applicable 
                provisions (as defined in paragraph (5)). Under 
                such plan the Secretary shall--
                          (i) address how measures used by 
                        private payers and integrated delivery 
                        systems could be incorporated under 
                        title XVIII;
                          (ii) describe how coordination, to 
                        the extent possible, will occur across 
                        organizations developing such measures; 
                        and
                          (iii) take into account how clinical 
                        best practices and clinical practice 
                        guidelines should be used in the 
                        development of quality measures.
                  (B) Quality domains.--For purposes of this 
                subsection, the term ``quality domains'' means 
                at least the following domains:
                          (i) Clinical care.
                          (ii) Safety.
                          (iii) Care coordination.
                          (iv) Patient and caregiver 
                        experience.
                          (v) Population health and prevention.
                  (C) Consideration.--In developing the draft 
                plan under this paragraph, the Secretary shall 
                consider--
                          (i) gap analyses conducted by the 
                        entity with a contract under section 
                        1890(a) or other contractors or 
                        entities;
                          (ii) whether measures are applicable 
                        across health care settings;
                          (iii) clinical practice improvement 
                        activities submitted under subsection 
                        (q)(2)(C)(iv) for identifying possible 
                        areas for future measure development 
                        and identifying existing gaps with 
                        respect to such measures; and
                          (iv) the quality domains applied 
                        under this subsection.
                  (D) Priorities.--In developing the draft plan 
                under this paragraph, the Secretary shall give 
                priority to the following types of measures:
                          (i) Outcome measures, including 
                        patient reported outcome and functional 
                        status measures.
                          (ii) Patient experience measures.
                          (iii) Care coordination measures.
                          (iv) Measures of appropriate use of 
                        services, including measures of over 
                        use.
                  (E) Stakeholder input.--The Secretary shall 
                accept through March 1, 2016, comments on the 
                draft plan posted under paragraph (1)(A) from 
                the public, including health care providers, 
                payers, consumers, and other stakeholders.
                  (F) Final measure development plan.--Not 
                later than May 1, 2016, taking into account the 
                comments received under this subparagraph, the 
                Secretary shall finalize the plan and post on 
                the Internet website of the Centers for 
                Medicare & Medicaid Services an operational 
                plan for the development of quality measures 
                for use under the applicable provisions. Such 
                plan shall be updated as appropriate.
          (2) Contracts and other arrangements for quality 
        measure development.--
                  (A) In general.--The Secretary shall enter 
                into contracts or other arrangements with 
                entities for the purpose of developing, 
                improving, updating, or expanding in accordance 
                with the plan under paragraph (1) quality 
                measures for application under the applicable 
                provisions. Such entities shall include 
                organizations with quality measure development 
                expertise.
                  (B) Prioritization.--
                          (i) In general.--In entering into 
                        contracts or other arrangements under 
                        subparagraph (A), the Secretary shall 
                        give priority to the development of the 
                        types of measures described in 
                        paragraph (1)(D).
                          (ii) Consideration.--In selecting 
                        measures for development under this 
                        subsection, the Secretary shall 
                        consider--
                                  (I) whether such measures 
                                would be electronically 
                                specified; and
                                  (II) clinical practice 
                                guidelines to the extent that 
                                such guidelines exist.
          (3) Annual report by the secretary.--
                  (A) In general.--Not later than May 1, 2017, 
                and annually thereafter, the Secretary shall 
                post on the Internet website of the Centers for 
                Medicare & Medicaid Services a report on the 
                progress made in developing quality measures 
                for application under the applicable 
                provisions.
                  (B) Requirements.--Each report submitted 
                pursuant to subparagraph (A) shall include the 
                following:
                          (i) A description of the Secretary's 
                        efforts to implement this paragraph.
                          (ii) With respect to the measures 
                        developed during the previous year--
                                  (I) a description of the 
                                total number of quality 
                                measures developed and the 
                                types of such measures, such as 
                                an outcome or patient 
                                experience measure;
                                  (II) the name of each measure 
                                developed;
                                  (III) the name of the 
                                developer and steward of each 
                                measure;
                                  (IV) with respect to each 
                                type of measure, an estimate of 
                                the total amount expended under 
                                this title to develop all 
                                measures of such type; and
                                  (V) whether the measure would 
                                be electronically specified.
                          (iii) With respect to measures in 
                        development at the time of the report--
                                  (I) the information described 
                                in clause (ii), if available; 
                                and
                                  (II) a timeline for 
                                completion of the development 
                                of such measures.
                          (iv) A description of any updates to 
                        the plan under paragraph (1) (including 
                        newly identified gaps and the status of 
                        previously identified gaps) and the 
                        inventory of measures applicable under 
                        the applicable provisions.
                          (v) Other information the Secretary 
                        determines to be appropriate.
          (4) Stakeholder input.--With respect to paragraph 
        (1), the Secretary shall seek stakeholder input with 
        respect to--
                  (A) the identification of gaps where no 
                quality measures exist, particularly with 
                respect to the types of measures described in 
                paragraph (1)(D);
                  (B) prioritizing quality measure development 
                to address such gaps; and
                  (C) other areas related to quality measure 
                development determined appropriate by the 
                Secretary.
          (5) Definition of applicable provisions.--In this 
        subsection, the term ``applicable provisions'' means 
        the following provisions:
                  (A) Subsection (q)(2)(B)(i).
                  (B) Section 1833(z)(2)(C).
          (6) Funding.--For purposes of carrying out this 
        subsection, the Secretary shall provide for the 
        transfer, from the Federal Supplementary Medical 
        Insurance Trust Fund under section 1841, of $15,000,000 
        to the Centers for Medicare & Medicaid Services Program 
        Management Account for each of fiscal years 2015 
        through 2019. Amounts transferred under this paragraph 
        shall remain available through the end of fiscal year 
        2022.
          (7) Administration.--Chapter 35 of title 44, United 
        States Code, shall not apply to the collection of 
        information for the development of quality measures.

           *       *       *       *       *       *       *


Part E--Miscellaneous Provisions

           *       *       *       *       *       *       *



          payment to hospitals for inpatient hospital services

  Sec. 1886. (a)(1)(A)(i) The Secretary, in determining the 
amount of the payments that may be made under this title with 
respect to operating costs of inpatient hospital services (as 
defined in paragraph (4)) shall not recognize as reasonable (in 
the efficient delivery of health services) costs for the 
provision of such services by a hospital for a cost reporting 
period to the extent such costs exceed the applicable 
percentage (as determined under clause (ii)) of the average of 
such costs for all hospitals in the same grouping as such 
hospital for comparable time periods.
  (ii) For purposes of clause (i), the applicable percentage 
for hospital cost reporting periods beginning--
          (I) on or after October 1, 1982, and before October 
        1, 1983, is 120 percent;
          (II) on or after October 1, 1983, and before October 
        1, 1984, is 115 percent; and
          (III) on or after October 1, 1984, is 110 percent.
  (B)(i) For purposes of subparagraph (A) the Secretary shall 
establish case mix indexes for all short- term hospitals, and 
shall set limits for each hospital based upon the general mix 
of types of medical cases with respect to which such hospital 
provides services for which payment may be made under this 
title.
  (ii) The Secretary shall set such limits for a cost reporting 
period of a hospital--
          (I) by updating available data for a previous period 
        to the immediate preceding cost reporting period by the 
        estimated average rate of change of hospital costs 
        industry-wide, and
          (II) by projecting for the cost reporting period by 
        the applicable percentage increase (as defined in 
        subsection (b)(3)(B)).
  (C) The limitation established under subparagraph (A) for any 
hospital shall in no event be lower than the allowable 
operating costs of inpatient hospital services (as defined in 
paragraph (4)) recognized under this title for such hospital 
for such hospital's last cost reporting period prior to the 
hospital's first cost reporting period for which this section 
is in effect.
  (D) Subparagraph (A) shall not apply to cost reporting 
periods beginning on or after October 1, 1983.
  (2) The Secretary shall provide for such exemptions from, and 
exceptions and adjustments to, the limitation established under 
paragraph (1)(A) as he deems appropriate, including those which 
he deems necessary to take into account--
          (A) the special needs of sole community hospitals, of 
        new hospitals, of risk based health maintenance 
        organizations, and of hospitals which provide atypical 
        services or essential community services, and to take 
        into account extraordinary circumstances beyond the 
        hospital's control, medical and paramedical education 
        costs, significantly fluctuating population in the 
        service area of the hospital, and unusual labor costs,
          (B) the special needs of psychiatric hospitals and of 
        public or other hospitals that serve a significantly 
        disproportionate number of patients who have low income 
        or are entitled to benefits under part A of this title, 
        and
          (C) a decrease in the inpatient hospital services 
        that a hospital provides and that are customarily 
        provided directly by similar hospitals which results in 
        a significant distortion in the operating costs of 
        inpatient hospital services.
  (3) The limitation established under paragraph (1)(A) shall 
not apply with respect to any hospital which--
          (A) is located outside of a standard metropolitan 
        statistical area, and
          (B)(i) has less than 50 beds, and
          (ii) was in operation and had less than 50 beds on 
        the date of the enactment of this section.
  (4) For purposes of this section, the term ``operating costs 
of inpatient hospital services'' includes all routine operating 
costs, ancillary service operating costs, and special care unit 
operating costs with respect to inpatient hospital services as 
such costs are determined on an average per admission or per 
discharge basis (as determined by the Secretary), and includes 
the costs of all services for which payment may be made under 
this title that are provided by the hospital (or by an entity 
wholly owned or operated by the hospital) to the patient during 
the 3 days (or, in the case of a hospital that is not a 
subsection (d) hospital, during the 1 day) immediately 
preceding the date of the patient's admission if such services 
are diagnostic services (including clinical diagnostic 
laboratory tests) or are other services related to the 
admission (as defined by the Secretary). Such term does not 
include costs of approved educational activities, a return on 
equity capital, or, other capital-related costs (as defined by 
the Secretary for periods before October 1, 1987). In applying 
the first sentence of this paragraph, the term ``other services 
related to the admission'' includes all services that are not 
diagnostic services (other than ambulance and maintenance renal 
dialysis services) for which payment may be made under this 
title that are provided by a hospital (or an entity wholly 
owned or operated by the hospital) to a patient--
          (A) on the date of the patient's inpatient admission; 
        or
          (B) during the 3 days (or, in the case of a hospital 
        that is not a subsection (d) hospital, during the 1 
        day) immediately preceding the date of such admission 
        unless the hospital demonstrates (in a form and manner, 
        and at a time, specified by the Secretary) that such 
        services are not related (as determined by the 
        Secretary) to such admission.
  (b)(1) Notwithstanding section 1814(b) but subject to the 
provisions of section 1813, if the operating costs of inpatient 
hospital services (as defined in subsection (a)(4)) of a 
hospital (other than a subsection (d) hospital, as defined in 
subsection (d)(1)(B) and other than a rehabilitation facility 
described in subsection (j)(1)) for a cost reporting period 
subject to this paragraph--
          (A) are less than or equal to the target amount (as 
        defined in paragraph (3)) for that hospital for that 
        period, the amount of the payment with respect to such 
        operating costs payable under part A on a per discharge 
        or per admission basis (as the case may be) shall be 
        equal to the amount of such operating costs, plus--
                  (i) 15 percent of the amount by which the 
                target amount exceeds the amount of the 
                operating costs, or
                  (ii) 2 percent of the target amount,
        whichever is less;
          (B) are greater than the target amount but do not 
        exceed 110 percent of the target amount, the amount of 
        the payment with respect to those operating costs 
        payable under part A on a per discharge basis shall 
        equal the target amount; or
          (C) are greater than 110 percent of the target 
        amount, the amount of the payment with respect to such 
        operating costs payable under part A on a per discharge 
        or per admission basis (as the case may be) shall be 
        equal to (i) the target amount, plus (ii) in the case 
        of cost reporting periods beginning on or after October 
        1, 1991, an additional amount equal to 50 percent of 
        the amount by which the operating costs exceed 110 
        percent of the target amount (except that such 
        additional amount may not exceed 10 percent of the 
        target amount) after any exceptions or adjustments are 
        made to such target amount for the cost reporting 
        period;
plus the amount, if any, provided under paragraph (2), except 
that in no case may the amount payable under this title (other 
than on the basis of a DRG prospective payment rate determined 
under subsection (d)) with respect to operating costs of 
inpatient hospital services exceed the maximum amount payable 
with respect to such costs pursuant to subsection (a).
  (2)(A) Except as provided in subparagraph (E), in addition to 
the payment computed under paragraph (1), in the case of an 
eligible hospital (described in subparagraph (B)) for a cost 
reporting period beginning on or after October 1, 1997, the 
amount of payment on a per discharge basis under paragraph (1) 
shall be increased by the lesser of--
          (i) 50 percent of the amount by which the operating 
        costs are less than the expected costs (as defined in 
        subparagraph (D)) for the period; or
          (ii) 1 percent of the target amount for the period.
  (B) For purposes of this paragraph, an ``eligible hospital'' 
means with respect to a cost reporting period, a hospital--
          (i) that has received payments under this subsection 
        for at least 3 full cost reporting periods before that 
        cost reporting period, and
          (ii) whose operating costs for the period are less 
        than the least of its target amount, its trended costs 
        (as defined in subparagraph (C)), or its expected costs 
        (as defined in subparagraph (D)) for the period.
  (C) For purposes of subparagraph (B)(ii), the term ``trended 
costs'' means for a hospital cost reporting period ending in a 
fiscal year--
          (i) in the case of a hospital for which its cost 
        reporting period ending in fiscal year 1996 was its 
        third or subsequent full cost reporting period for 
        which it receives payments under this subsection, the 
        lesser of the operating costs or target amount for that 
        hospital for its cost reporting period ending in fiscal 
        year 1996, or
          (ii) in the case of any other hospital, the operating 
        costs for that hospital for its third full cost 
        reporting period for which it receives payments under 
        this subsection,
increased (in a compounded manner) for each succeeding fiscal 
year (through the fiscal year involved) by the market basket 
percentage increase for the fiscal year.
  (D) For purposes of this paragraph, the term ``expected 
costs'', with respect to the cost reporting period ending in a 
fiscal year, means the lesser of the operating costs of 
inpatient hospital services or target amount per discharge for 
the previous cost reporting period updated by the market basket 
percentage increase (as defined in paragraph (3)(B)(iii)) for 
the fiscal year.
  (E)(i) In the case of an eligible hospital that is a hospital 
or unit that is within a class of hospital described in clause 
(ii) with a 12-month cost reporting period beginning before the 
enactment of this subparagraph, in determining the amount of 
the increase under subparagraph (A), the Secretary shall 
substitute for the percentage of the target amount applicable 
under subparagraph (A)(ii)--
          (I) for a cost reporting period beginning on or after 
        October 1, 2000, and before September 30, 2001, 1.5 
        percent; and
          (II) for a cost reporting period beginning on or 
        after October 1, 2001, and before September 30, 2002, 2 
        percent.
  (ii) For purposes of clause (i), each of the following shall 
be treated as a separate class of hospital:
          (I) Hospitals described in clause (i) of subsection 
        (d)(1)(B) and psychiatric units described in the matter 
        following clause (v) of such subsection.
          (II) Hospitals described in clause (iv) of such 
        subsection.
  (3)(A) Except as provided in subparagraph (C) and succeeding 
subparagraphs and in paragraph (7)(A)(ii), for purposes of this 
subsection, the term ``target amount'' means, with respect to a 
hospital for a particular 12-month cost reporting period--
          (i) in the case of the first such reporting period 
        for which this subsection is in effect, the allowable 
        operating costs of inpatient hospital services (as 
        defined in subsection (a)(4)) recognized under this 
        title for such hospital for the preceding 12-month cost 
        reporting period, and
          (ii) in the case of a later reporting period, the 
        target amount for the preceding 12-month cost reporting 
        period,
increased by the applicable percentage increase under 
subparagraph (B) for that particular cost reporting period.
  (B)(i) For purposes of subsection (d) and subsection (j) for 
discharges occurring during a fiscal year, the ``applicable 
percentage increase'' shall be--
          (I) for fiscal year 1986, \1/2\ percent,
          (II) for fiscal year 1987, 1.15 percent,
          (III) for fiscal year 1988, 3.0 percent for hospitals 
        located in a rural area, 1.5 percent for hospitals 
        located in a large urban area (as defined in subsection 
        (d)(2)(D)), and 1.0 percent for hospitals located in 
        other urban areas,
          (IV) for fiscal year 1989, the market basket 
        percentage increase minus 1.5 percentage points for 
        hospitals located in a rural area, the market basket 
        percentage increase minus 2.0 percentage points for 
        hospitals located in a large urban area, and the market 
        basket percentage increase minus 2.5 percentage points 
        for hospitals located in other urban areas,
          (V) for fiscal year 1990, the market basket 
        percentage increase plus 4.22 percentage points for 
        hospitals located in a rural area, the market basket 
        percentage increase plus 0.12 percentage points for 
        hospitals located in a large urban area, and the market 
        basket percentage increase minus 0.53 percentage points 
        for hospitals located in other urban areas,
          (VI) for fiscal year 1991, the market basket 
        percentage increase minus 2.0 percentage points for 
        hospitals in a large urban or other urban area, and the 
        market basket percentage increase minus 0.7 percentage 
        point for hospitals located in a rural area,
          (VII) for fiscal year 1992, the market basket 
        percentage increase minus 1.6 percentage points for 
        hospitals in a large urban or other urban area, and the 
        market basket percentage increase minus 0.6 percentage 
        point for hospitals located in a rural area,
          (VIII) for fiscal year 1993, the market basket 
        percentage increase minus 1.55 percentage point for 
        hospitals in a large urban or other urban area, and the 
        market basket percentage increase minus 0.55 for 
        hospitals located in a rural area,
          (IX) for fiscal year 1994, the market basket 
        percentage increase minus 2.5 percentage points for 
        hospitals located in a large urban or other urban area, 
        and the market basket percentage increase minus 1.0 
        percentage point for hospitals located in a rural area,
          (X) for fiscal year 1995, the market basket 
        percentage increase minus 2.5 percentage points for 
        hospitals located in a large urban or other urban area, 
        and such percentage increase for hospitals located in a 
        rural area as will provide for the average standardized 
        amount determined under subsection (d)(3)(A) for 
        hospitals located in a rural area being equal to such 
        average standardized amount for hospitals located in an 
        urban area (other than a large urban area),
          (XI) for fiscal year 1996, the market basket 
        percentage increase minus 2.0 percentage points for 
        hospitals in all areas,
          (XII) for fiscal year 1997, the market basket 
        percentage increase minus 0.5 percentage point for 
        hospitals in all areas,
          (XIII) for fiscal year 1998, 0 percent,
          (XIV) for fiscal year 1999, the market basket 
        percentage increase minus 1.9 percentage points for 
        hospitals in all areas,
          (XV) for fiscal year 2000, the market basket 
        percentage increase minus 1.8 percentage points for 
        hospitals in all areas,
          (XVI) for fiscal year 2001, the market basket 
        percentage increase for hospitals in all areas,
          (XVII) for fiscal year 2002, the market basket 
        percentage increase minus 0.55 percentage points for 
        hospitals in all areas,
          (XVIII) for fiscal year 2003, the market basket 
        percentage increase minus 0.55 percentage points for 
        hospitals in all areas,
          (XIX) for each of fiscal years 2004 through 2006, 
        subject to clause (vii), the market basket percentage 
        increase for hospitals in all areas; and
          (XX) for each subsequent fiscal year, subject to 
        clauses (viii), (ix), (xi), and (xii), the market 
        basket percentage increase for hospitals in all areas.
  (ii) For purposes of subparagraphs (A) and (E), the 
``applicable percentage increase'' for 12-month cost reporting 
periods beginning during--
          (I) fiscal year 1986, is 0.5 percent,
          (II) fiscal year 1987, is 1.15 percent,
          (III) fiscal year 1988, is the market basket 
        percentage increase minus 2.0 percentage points,
          (IV) a subsequent fiscal year ending on or before 
        September 30, 1993, is the market basket percentage 
        increase,
          (V) fiscal years 1994 through 1997, is the market 
        basket percentage increase minus the applicable 
        reduction (as defined in clause (v)(II)), or in the 
        case of a hospital for a fiscal year for which the 
        hospital's update adjustment percentage (as defined in 
        clause (v)(I)) is at least 10 percent, the market 
        basket percentage increase,
          (VI) for fiscal year 1998, is 0 percent,
          (VII) for fiscal years 1999 through 2002, is the 
        applicable update factor specified under clause (vi) 
        for the fiscal year, and
          (VIII) subsequent fiscal years is the market basket 
        percentage increase.
  (iii) For purposes of this subparagraph, the term ``market 
basket percentage increase'' means, with respect to cost 
reporting periods and discharges occurring in a fiscal year, 
the percentage, estimated by the Secretary before the beginning 
of the period or fiscal year, by which the cost of the mix of 
goods and services (including personnel costs but excluding 
nonoperating costs) comprising routine, ancillary, and special 
care unit inpatient hospital services, based on an index of 
appropriately weighted indicators of changes in wages and 
prices which are representative of the mix of goods and 
services included in such inpatient hospital services, for the 
period or fiscal year will exceed the cost of such mix of goods 
and services for the preceding 12-month cost reporting period 
or fiscal year.
  (iv) For purposes of subparagraphs (C) and (D), the 
``applicable percentage increase'' is--
          (I) for 12-month cost reporting periods beginning 
        during fiscal years 1986 through 1993, the applicable 
        percentage increase specified in clause (ii),
          (II) for fiscal year 1994, the market basket 
        percentage increase minus 2.3 percentage points 
        (adjusted to exclude any portion of a cost reporting 
        period beginning during fiscal year 1993 for which the 
        applicable percentage increase is determined under 
        subparagraph (I)),
          (III) for fiscal year 1995, the market basket 
        percentage increase minus 2.2 percentage points, and
          (IV) for fiscal year 1996 and each subsequent fiscal 
        year, the applicable percentage increase under clause 
        (i).
  (v) For purposes of clause (ii)(V)--
          (I) a hospital's ``update adjustment percentage'' for 
        a fiscal year is the percentage by which the hospital's 
        allowable operating costs of inpatient hospital 
        services recognized under this title for the cost 
        reporting period beginning in fiscal year 1990 exceeds 
        the hospital's target amount (as determined under 
        subparagraph (A)) for such cost reporting period, 
        increased for each fiscal year (beginning with fiscal 
        year 1994) by the sum of any of the hospital's 
        applicable reductions under subclause (V) for previous 
        fiscal years; and
          (II) the ``applicable reduction'' with respect to a 
        hospital for a fiscal year is the lesser of 1 
        percentage point or the percentage point difference 
        between 10 percent and the hospital's update adjustment 
        percentage for the fiscal year.
  (vi) For purposes of clause (ii)(VII) for a fiscal year, if a 
hospital's allowable operating costs of inpatient hospital 
services recognized under this title for the most recent cost 
reporting period for which information is available--
          (I) is equal to, or exceeds, 110 percent of the 
        hospital's target amount (as determined under 
        subparagraph (A)) for such cost reporting period, the 
        applicable update factor specified under this clause is 
        the market basket percentage;
          (II) exceeds 100 percent, but is less than 110 
        percent, of such target amount for the hospital, the 
        applicable update factor specified under this clause is 
        0 percent or, if greater, the market basket percentage 
        minus 0.25 percentage points for each percentage point 
        by which such allowable operating costs (expressed as a 
        percentage of such target amount) is less than 110 
        percent of such target amount;
          (III) is equal to, or less than 100 percent, but 
        exceeds \2/3\ of such target amount for the hospital, 
        the applicable update factor specified under this 
        clause is 0 percent or, if greater, the market basket 
        percentage minus 2.5 percentage points; or
          (IV) does not exceed \2/3\ of such target amount for 
        the hospital, the applicable update factor specified 
        under this clause is 0 percent.
  (vii)(I) For purposes of clause (i)(XIX) for fiscal years 
2005 and 2006, in a case of a subsection (d) hospital that does 
not submit data to the Secretary in accordance with subclause 
(II) with respect to such a fiscal year, the applicable 
percentage increase under such clause for such fiscal year 
shall be reduced by 0.4 percentage points. Such reduction shall 
apply only with respect to the fiscal year involved, and the 
Secretary shall not take into account such reduction in 
computing the applicable percentage increase under clause 
(i)(XIX) for a subsequent fiscal year.
  (II) For fiscal years 2005 and 2006, each subsection (d) 
hospital shall submit to the Secretary quality data (for a set 
of 10 indicators established by the Secretary as of November 1, 
2003) that relate to the quality of care furnished by the 
hospital in inpatient settings in a form and manner, and at a 
time, specified by the Secretary for purposes of this clause, 
but with respect to fiscal year 2005, the Secretary shall 
provide for a 30-day grace period for the submission of data by 
a hospital.
  (viii)(I) For purposes of clause (i) for fiscal year 2007 and 
each subsequent fiscal year, in the case of a subsection (d) 
hospital that does not submit, to the Secretary in accordance 
with this clause, data required to be submitted on measures 
selected under this clause with respect to such a fiscal year, 
the applicable percentage increase under clause (i) for such 
fiscal year shall be reduced by 2.0 percentage points (or, 
beginning with fiscal year 2015, by one-quarter of such 
applicable percentage increase (determined without regard to 
clause (ix), (xi), or (xii))). Such reduction shall apply only 
with respect to the fiscal year involved and the Secretary 
shall not take into account such reduction in computing the 
applicable percentage increase under clause (i) for a 
subsequent fiscal year, and the Secretary and the Medicare 
Payment Advisory Commission shall carry out the requirements 
under section 5001(b) of the Deficit Reduction Act of 2005.
  (II) Each subsection (d) hospital shall submit data on 
measures selected under this clause to the Secretary in a form 
and manner, and at a time, specified by the Secretary for 
purposes of this clause. The Secretary may require hospitals to 
submit data on measures that are not used for the determination 
of value-based incentive payments under subsection (o).
  (III) The Secretary shall expand, beyond the measures 
specified under clause (vii)(II) and consistent with the 
succeeding subclauses, the set of measures that the Secretary 
determines to be appropriate for the measurement of the quality 
of care (including medication errors) furnished by hospitals in 
inpatient settings.
  (IV) Effective for payments beginning with fiscal year 2007, 
in expanding the number of measures under subclause (III), the 
Secretary shall begin to adopt the baseline set of performance 
measures as set forth in the November 2005 report by the 
Institute of Medicine of the National Academy of Sciences under 
section 238(b) of the Medicare Prescription Drug, Improvement, 
and Modernization Act of 2003.
  (V) Effective for payments for fiscal years 2008 through 
2012, the Secretary shall add other measures that reflect 
consensus among affected parties and, to the extent feasible 
and practicable, shall include measures set forth by one or 
more national consensus building entities.
  (VI) For purposes of this clause and clause (vii), the 
Secretary may replace any measures or indicators in appropriate 
cases, such as where all hospitals are effectively in 
compliance or the measures or indicators have been subsequently 
shown not to represent the best clinical practice.
  (VII) The Secretary shall establish procedures for making 
information regarding measures submitted under this clause 
available to the public. Such procedures shall ensure that a 
hospital has the opportunity to review the data that are to be 
made public with respect to the hospital prior to such data 
being made public. The Secretary shall report quality measures 
of process, structure, outcome, patients' perspectives on care, 
efficiency, and costs of care that relate to services furnished 
in inpatient settings in hospitals on the Internet website of 
the Centers for Medicare & Medicaid Services.
  (VIII) Effective for payments beginning with fiscal year 
2013, with respect to quality measures for outcomes of care, 
the Secretary shall provide for such risk adjustment as the 
Secretary determines to be appropriate to maintain incentives 
for hospitals to treat patients with severe illnesses or 
conditions.
  (IX)(aa) Subject to item (bb), effective for payments 
beginning with fiscal year 2013, each measure specified by the 
Secretary under this clause shall be endorsed by the entity 
with a contract under section 1890(a).
  (bb) In the case of a specified area or medical topic 
determined appropriate by the Secretary for which a feasible 
and practical measure has not been endorsed by the entity with 
a contract under section 1890(a), the Secretary may specify a 
measure that is not so endorsed as long as due consideration is 
given to measures that have been endorsed or adopted by a 
consensus organization identified by the Secretary.
  (X) To the extent practicable, the Secretary shall, with 
input from consensus organizations and other stakeholders, take 
steps to ensure that the measures specified by the Secretary 
under this clause are coordinated and aligned with quality 
measures applicable to--
          (aa) physicians under section 1848(k); and
          (bb) other providers of services and suppliers under 
        this title.
  (XI) The Secretary shall establish a process to validate 
measures specified under this clause as appropriate. Such 
process shall include the auditing of a number of randomly 
selected hospitals sufficient to ensure validity of the 
reporting program under this clause as a whole and shall 
provide a hospital with an opportunity to appeal the validation 
of measures reported by such hospital.
  (ix)(I) For purposes of clause (i) for fiscal year 2015 and 
each subsequent fiscal year, in the case of an eligible 
hospital (as defined in subsection (n)(6)(B)) that is not a 
meaningful EHR user (as defined in subsection (n)(3)) for an 
EHR reporting period for such fiscal year, three-quarters of 
the applicable percentage increase otherwise applicable under 
clause (i) (determined without regard to clause (viii), (xi), 
or (xii)) for such fiscal year shall be reduced by 33\1/3\ 
percent for fiscal year 2015, 66\2/3\ percent for fiscal year 
2016, and 100 percent for fiscal year 2017 and each subsequent 
fiscal year. Such reduction shall apply only with respect to 
the fiscal year involved and the Secretary shall not take into 
account such reduction in computing the applicable percentage 
increase under clause (i) for a subsequent fiscal year.
  (II) The Secretary may, on a case-by-case basis (and, with 
respect to the application of subclause (I) for fiscal year 
2017, for categories of subsection (d) hospitals, as 
established by the Secretary and posted on the Internet website 
of the Centers for Medicare & Medicaid Services prior to 
December 15, 2015, an application for which must be submitted 
to the Secretary by not later than April 1, 2016), exempt an 
eligible hospital from the application of subclause (I) with 
respect to a fiscal year if the Secretary determines, subject 
to annual renewal, that requiring such hospital to be a 
meaningful EHR user during such fiscal year would result in a 
significant hardship, such as in the case of a hospital in a 
rural area without sufficient Internet access. The Secretary 
shall exempt an eligible hospital from the application of the 
payment adjustment under subclause (I) with respect to a fiscal 
year, subject to annual renewal, if the Secretary determines 
that compliance with the requirement for being a meaningful EHR 
user is not possible because the certified EHR technology used 
by such hospital is decertified under a program kept or 
recognized pursuant to section 3001(c)(5) of the Public Health 
Service Act. In no case may a hospital be granted an exemption 
under this subclause for more than 5 years.
  (III) For fiscal year 2015 and each subsequent fiscal year, a 
State in which hospitals are paid for services under section 
1814(b)(3) shall adjust the payments to each subsection (d) 
hospital in the State that is not a meaningful EHR user (as 
defined in subsection (n)(3)) in a manner that is designed to 
result in an aggregate reduction in payments to hospitals in 
the State that is equivalent to the aggregate reduction that 
would have occurred if payments had been reduced to each 
subsection (d) hospital in the State in a manner comparable to 
the reduction under the previous provisions of this clause. The 
State shall report to the Secretary the methodology it will use 
to make the payment adjustment under the previous sentence.
  (IV) For purposes of this clause, the term ``EHR reporting 
period'' means, with respect to a fiscal year, any period (or 
periods) as specified by the Secretary.
  (x)(I) The Secretary shall develop standard Internet website 
reports tailored to meet the needs of various stakeholders such 
as hospitals, patients, researchers, and policymakers. The 
Secretary shall seek input from such stakeholders in 
determining the type of information that is useful and the 
formats that best facilitate the use of the information.
  (II) The Secretary shall modify the Hospital Compare Internet 
website to make the use and navigation of that website readily 
available to individuals accessing it.
  (xi)(I) For 2012 and each subsequent fiscal year, after 
determining the applicable percentage increase described in 
clause (i) and after application of clauses (viii) and (ix), 
such percentage increase shall be reduced by the productivity 
adjustment described in subclause (II).
  (II) The productivity adjustment described in this subclause, 
with respect to a percentage, factor, or update for a fiscal 
year, year, cost reporting period, or other annual period, is a 
productivity adjustment equal to the 10-year moving average of 
changes in annual economy-wide private nonfarm business multi-
factor productivity (as projected by the Secretary for the 10-
year period ending with the applicable fiscal year, year, cost 
reporting period, or other annual period).
  (III) The application of subclause (I) may result in the 
applicable percentage increase described in clause (i) being 
less than 0.0 for a fiscal year, and may result in payment 
rates under this section for a fiscal year being less than such 
payment rates for the preceding fiscal year.
  (xii) After determining the applicable percentage increase 
described in clause (i), and after application of clauses 
(viii), (ix), and (xi), the Secretary shall reduce such 
applicable percentage increase--
          (I) for each of fiscal years 2010 and 2011, by 0.25 
        percentage point;
          (II) for each of fiscal years 2012 and 2013, by 0.1 
        percentage point;
          (III) for fiscal year 2014, by 0.3 percentage point;
          (IV) for each of fiscal years 2015 and 2016, by 0.2 
        percentage point; and
          (V) for each of fiscal years 2017, 2018, and 2019, by 
        0.75 percentage point.
The application of this clause may result in the applicable 
percentage increase described in clause (i) being less than 0.0 
for a fiscal year, and may result in payment rates under this 
section for a fiscal year being less than such payment rates 
for the preceding fiscal year.
  (C) In the case of a hospital that is a sole community 
hospital (as defined in subsection (d)(5)(D)(iii)), subject to 
subparagraphs (I) and (L), the term ``target amount'' means--
          (i) with respect to the first 12-month cost reporting 
        period in which this subparagraph is applied to the 
        hospital--
                  (I) the allowable operating costs of 
                inpatient hospital services (as defined in 
                subsection (a)(4)) recognized under this title 
                for the hospital for the 12-month cost 
                reporting period (in this subparagraph referred 
                to as the ``base cost reporting period'') 
                preceding the first cost reporting period for 
                which this subsection was in effect with 
                respect to such hospital, increased (in a 
                compounded manner) by--
                  (II) the applicable percentage increases 
                applied to such hospital under this paragraph 
                for cost reporting periods after the base cost 
                reporting period and up to and including such 
                first 12-month cost reporting period,
          (ii) with respect to a later cost reporting period 
        beginning before fiscal year 1994, the target amount 
        for the preceding 12-month cost reporting period, 
        increased by the applicable percentage increase under 
        subparagraph (B)(iv) for discharges occurring in the 
        fiscal year in which that later cost reporting period 
        begins,
          (iii) with respect to discharges occurring in fiscal 
        year 1994, the target amount for the cost reporting 
        period beginning in fiscal year 1993 increased by the 
        applicable percentage increase under subparagraph 
        (B)(iv), or
          (iv) with respect to discharges occurring in fiscal 
        year 1995 and each subsequent fiscal year, the target 
        amount for the preceding year increased by the 
        applicable percentage increase under subparagraph 
        (B)(iv).
There shall be substituted for the base cost reporting period 
described in clause (i) a hospital's cost reporting period (if 
any) beginning during fiscal year 1987 if such substitution 
results in an increase in the target amount for the hospital.
  (D) For cost reporting periods ending on or before September 
30, 1994, and for cost reporting periods occurring on or after 
October 1, 1997, and before October 1, 2017, in the case of a 
hospital that is a medicare-dependent, small rural hospital (as 
defined in subsection (d)(5)(G)), subject to subparagraph (K), 
the term ``target amount'' means--
          (i) with respect to the first 12-month cost reporting 
        period in which this subparagraph is applied to the 
        hospital--
                  (I) the allowable operating costs of 
                inpatient hospital services (as defined in 
                subsection (a)(4)) recognized under this title 
                for the hospital for the 12-month cost 
                reporting period (in this subparagraph referred 
                to as the ``base cost reporting period'') 
                preceding the first cost reporting period for 
                which this subsection was in effect with 
                respect to such hospital, increased (in a 
                compounded manner) by--
                  (II) the applicable percentage increases 
                applied to such hospital under this paragraph 
                for cost reporting periods after the base cost 
                reporting period and up to and including such 
                first 12-month cost reporting period, or
          (ii) with respect to a later cost reporting period 
        beginning before fiscal year 1994, the target amount 
        for the preceding 12-month cost reporting period, 
        increased by the applicable percentage increase under 
        subparagraph (B)(iv) for discharges occurring in the 
        fiscal year in which that later cost reporting period 
        begins,
          (iii) with respect to discharges occurring in fiscal 
        year 1994, the target amount for the cost reporting 
        period beginning in fiscal year 1993 increased by the 
        applicable percentage increase under subparagraph 
        (B)(iv), and
          (iv) with respect to discharges occurring during 
        fiscal year 1998 through fiscal year 2017, the target 
        amount for the preceding year increased by the 
        applicable percentage increase under subparagraph 
        (B)(iv).
There shall be substituted for the base cost reporting period 
described in clause (i) a hospital's cost reporting period (if 
any) beginning during fiscal year 1987 if such substitution 
results in an increase in the target amount for the hospital.
  (E) In the case of a hospital described in clause (v) of 
subsection (d)(1)(B), the term ``target amount'' means--
          (i) with respect to the first 12-month cost reporting 
        period in which this subparagraph is applied to the 
        hospital--
                  (I) the allowable operating costs of 
                inpatient hospital services (as defined in 
                subsection (a)(4)) recognized under this title 
                for the hospital for the 12-month cost 
                reporting period (in this subparagraph referred 
                to as the ``base cost reporting period'') 
                preceding the first cost reporting period for 
                which this subsection was in effect with 
                respect to such hospital, increased (in a 
                compounded manner) by--
                  (II) the sum of the applicable percentage 
                increases applied to such hospital under this 
                paragraph for cost reporting periods after the 
                base cost reporting period and up to and 
                including such first 12-month cost reporting 
                period, or
          (ii) with respect to a later cost reporting period, 
        the target amount for the preceding 12-month cost 
        reporting period, increased by the applicable 
        percentage increase under subparagraph (B)(ii) for that 
        later cost reporting period.
There shall be substituted for the base cost reporting period 
described in clause (i) a hospital's cost reporting period (if 
any) beginning during fiscal year 1987 if such substitution 
results in an increase in the target amount for the hospital.
  (F)(i) In the case of a hospital (or unit described in the 
matter following clause (v) of subsection (d)(1)(B)) that 
received payment under this subsection for inpatient hospital 
services furnished during cost reporting periods beginning 
before October 1, 1990, that is within a class of hospital 
described in clause (iii), and that elects (in a form and 
manner determined by the Secretary) this subparagraph to apply 
to the hospital, the target amount for the hospital's 12-month 
cost reporting period beginning during fiscal year 1998 is 
equal to the average described in clause (ii).
  (ii) The average described in this clause for a hospital or 
unit shall be determined by the Secretary as follows:
          (I) The Secretary shall determine the allowable 
        operating costs for inpatient hospital services for the 
        hospital or unit for each of the 5 cost reporting 
        periods for which the Secretary has the most recent 
        settled cost reports as of the date of the enactment of 
        this subparagraph.
          (II) The Secretary shall increase the amount 
        determined under subclause (I) for each cost reporting 
        period by the applicable percentage increase under 
        subparagraph (B)(ii) for each subsequent cost reporting 
        period up to the cost reporting period described in 
        clause (i).
          (III) The Secretary shall identify among such 5 cost 
        reporting periods the cost reporting periods for which 
        the amount determined under subclause (II) is the 
        highest, and the lowest.
          (IV) The Secretary shall compute the averages of the 
        amounts determined under subclause (II) for the 3 cost 
        reporting periods not identified under subclause (III).
  (iii) For purposes of this subparagraph, each of the 
following shall be treated as a separate class of hospital:
          (I) Hospitals described in clause (i) of subsection 
        (d)(1)(B) and psychiatric units described in the matter 
        following clause (v) of such subsection.
          (II) Hospitals described in clause (ii) of such 
        subsection and rehabilitation units described in the 
        matter following clause (v) of such subsection.
          (III) Hospitals described in clause (iii) of such 
        subsection.
          (IV) Hospitals described in clause (iv) of such 
        subsection.
          (V) Hospitals described in clause (v) of such 
        subsection.
  (G)(i) In the case of a qualified long-term care hospital (as 
defined in clause (ii)) that elects (in a form and manner 
determined by the Secretary) this subparagraph to apply to the 
hospital, the target amount for the hospital's 12-month cost 
reporting period beginning during fiscal year 1998 is equal to 
the allowable operating costs of inpatient hospital services 
(as defined in subsection (a)(4)) recognized under this title 
for the hospital for the 12-month cost reporting period 
beginning during fiscal year 1996, increased by the applicable 
percentage increase for the cost reporting period beginning 
during fiscal year 1997.
  (ii) In clause (i), a ``qualified long-term care hospital'' 
means, with respect to a cost reporting period, a hospital 
described in clause (iv) of subsection (d)(1)(B) during each of 
the 2 cost reporting periods for which the Secretary has the 
most recent settled cost reports as of the date of the 
enactment of this subparagraph for each of which--
          (I) the hospital's allowable operating costs of 
        inpatient hospital services recognized under this title 
        exceeded 115 percent of the hospital's target amount, 
        and
          (II) the hospital would have a disproportionate 
        patient percentage of at least 70 percent (as 
        determined by the Secretary under subsection 
        (d)(5)(F)(vi)) if the hospital were a subsection (d) 
        hospital.
  (H)(i) In the case of a hospital or unit that is within a 
class of hospital described in clause (iv), for a cost 
reporting period beginning during fiscal years 1998 through 
2002, the target amount for such a hospital or unit may not 
exceed the amount as updated up to or for such cost reporting 
period under clause (ii).
  (ii)(I) In the case of a hospital or unit that is within a 
class of hospital described in clause (iv), the Secretary shall 
estimate the 75th percentile of the target amounts for such 
hospitals within such class for cost reporting periods ending 
during fiscal year 1996, as adjusted under clause (iii).
  (II) The Secretary shall update the amount determined under 
subclause (I), for each cost reporting period after the cost 
reporting period described in such subclause and up to the 
first cost reporting period beginning on or after October 1, 
1997, by a factor equal to the market basket percentage 
increase.
  (III) For cost reporting periods beginning during each of 
fiscal years 1999 through 2002, subject to subparagraph (J), 
the Secretary shall update such amount by a factor equal to the 
market basket percentage increase.
  (iii) In applying clause (ii)(I) in the case of a hospital or 
unit, the Secretary shall provide for an appropriate adjustment 
to the labor-related portion of the amount determined under 
such subparagraph to take into account differences between 
average wage-related costs in the area of the hospital and the 
national average of such costs within the same class of 
hospital.
  (iv) For purposes of this subparagraph, each of the following 
shall be treated as a separate class of hospital:
          (I) Hospitals described in clause (i) of subsection 
        (d)(1)(B) and psychiatric units described in the matter 
        following clause (v) of such subsection.
          (II) Hospitals described in clause (ii) of such 
        subsection and rehabilitation units described in the 
        matter following clause (v) of such subsection.
          (III) Hospitals described in clause (iv) of such 
        subsection.
  (I)(i) Subject to subparagraph (L), for cost reporting 
periods beginning on or after October 1, 2000, in the case of a 
sole community hospital there shall be substituted for the 
amount otherwise determined under subsection (d)(5)(D)(i), if 
such substitution results in a greater amount of payment under 
this section for the hospital--
          (I) with respect to discharges occurring in fiscal 
        year 2001, 75 percent of the amount otherwise 
        applicable to the hospital under subsection 
        (d)(5)(D)(i) (referred to in this clause as the 
        ``subsection (d)(5)(D)(i) amount'') and 25 percent of 
        the rebased target amount (as defined in clause (ii));
          (II) with respect to discharges occurring in fiscal 
        year 2002, 50 percent of the subsection (d)(5)(D)(i) 
        amount and 50 percent of the rebased target amount;
          (III) with respect to discharges occurring in fiscal 
        year 2003, 25 percent of the subsection (d)(5)(D)(i) 
        amount and 75 percent of the rebased target amount; and
          (IV) with respect to discharges occurring after 
        fiscal year 2003, 100 percent of the rebased target 
        amount.
  (ii) For purposes of this subparagraph, the ``rebased target 
amount'' has the meaning given the term ``target amount'' in 
subparagraph (C) except that--
          (I) there shall be substituted for the base cost 
        reporting period the 12-month cost reporting period 
        beginning during fiscal year 1996;
          (II) any reference in subparagraph (C)(i) to the 
        ``first cost reporting period'' described in such 
        subparagraph is deemed a reference to the first cost 
        reporting period beginning on or after October 1, 2000; 
        and
          (III) applicable increase percentage shall only be 
        applied under subparagraph (C)(iv) for discharges 
        occurring in fiscal years beginning with fiscal year 
        2002.
  (iii) In no case shall a hospital be denied treatment as a 
sole community hospital or payment (on the basis of a target 
rate as such as a hospital) because data are unavailable for 
any cost reporting period due to changes in ownership, changes 
in fiscal intermediaries, or other extraordinary circumstances, 
so long as data for at least one applicable base cost reporting 
period is available.
  (J) For cost reporting periods beginning during fiscal year 
2001, for a hospital described in subsection (d)(1)(B)(iv)--
          (i) the limiting or cap amount otherwise determined 
        under subparagraph (H) shall be increased by 2 percent; 
        and
          (ii) the target amount otherwise determined under 
        subparagraph (A) shall be increased by 25 percent 
        (subject to the limiting or cap amount determined under 
        subparagraph (H), as increased by clause (i)).
  (K)(i) With respect to discharges occurring on or after 
October 1, 2006, in the case of a medicare-dependent, small 
rural hospital, for purposes of applying subparagraph (D)--
          (I) there shall be substituted for the base cost 
        reporting period described in subparagraph (D)(i) the 
        12-month cost reporting period beginning during fiscal 
        year 2002; and
          (II) any reference in such subparagraph to the 
        ``first cost reporting period'' described in such 
        subparagraph is deemed a reference to the first cost 
        reporting period beginning on or after October 1, 2006.
  (ii) This subparagraph shall only apply to a hospital if the 
substitution described in clause (i)(I) results in an increase 
in the target amount under subparagraph (D) for the hospital.
  (L)(i) For cost reporting periods beginning on or after 
January 1, 2009, in the case of a sole community hospital there 
shall be substituted for the amount otherwise determined under 
subsection (d)(5)(D)(i) of this section, if such substitution 
results in a greater amount of payment under this section for 
the hospital, the subparagraph (L) rebased target amount.
  (ii) For purposes of this subparagraph, the term 
``subparagraph (L) rebased target amount'' has the meaning 
given the term ``target amount'' in subparagraph (C), except 
that--
          (I) there shall be substituted for the base cost 
        reporting period the 12-month cost reporting period 
        beginning during fiscal year 2006;
          (II) any reference in subparagraph (C)(i) to the 
        ``first cost reporting period'' described in such 
        subparagraph is deemed a reference to the first cost 
        reporting period beginning on or after January 1, 2009; 
        and
          (III) the applicable percentage increase shall only 
        be applied under subparagraph (C)(iv) for discharges 
        occurring on or after January 1, 2009.
  (4)(A)(i) The Secretary shall provide for an exception and 
adjustment to (and in the case of a hospital described in 
subsection (d)(1)(B)(iii), may provide an exemption from) the 
method under this subsection for determining the amount of 
payment to a hospital where events beyond the hospital's 
control or extraordinary circumstances, including changes in 
the case mix of such hospital, create a distortion in the 
increase in costs for a cost reporting period (including any 
distortion in the costs for the base period against which such 
increase is measured). The Secretary may provide for such other 
exemptions from, and exceptions and adjustments to, such method 
as the Secretary deems appropriate, including the assignment of 
a new base period which is more representative, as determined 
by the Secretary, of the reasonable and necessary cost of 
inpatient services and including those which he deems necessary 
to take into account a decrease in the inpatient hospital 
services that a hospital provides and that are customarily 
provided directly by similar hospitals which results in a 
significant distortion in the operating costs of inpatient 
hospital services. The Secretary shall announce a decision on 
any request for an exemption, exception, or adjustment under 
this paragraph not later than 180 days after receiving a 
completed application from the intermediary for such exemption, 
exception, or adjustment, and shall include in such decision a 
detailed explanation of the grounds on which such request was 
approved or denied.
  (ii) The payment reductions under paragraph (3)(B)(ii)(V) 
shall not be considered by the Secretary in making adjustments 
pursuant to clause (i). In making such reductions, the 
Secretary shall treat the applicable update factor described in 
paragraph (3)(B)(vi) for a fiscal year as being equal to the 
market basket percentage for that year.
  (B) In determining under subparagraph (A) whether to assign a 
new base period which is more representative of the reasonable 
and necessary cost to a hospital of providing inpatient 
services, the Secretary shall take into consideration--
          (i) changes in applicable technologies and medical 
        practices, or differences in the severity of illness 
        among patients, that increase the hospital's costs;
          (ii) whether increases in wages and wage-related 
        costs for hospitals located in the geographic area in 
        which the hospital is located exceed the average of the 
        increases in such costs paid by hospitals in the United 
        States; and
          (iii) such other factors as the Secretary considers 
        appropriate in determining increases in the hospital's 
        costs of providing inpatient services.
  (C) Paragraph (1) shall not apply to payment of hospitals 
which is otherwise determined under paragraph (3) of section 
1814(b).
  (5) In the case of any hospital having any cost reporting 
period of other than a 12-month period, the Secretary shall 
determine the 12-month period which shall be used for purposes 
of this section.
  (6) In the case of any hospital which becomes subject to the 
taxes under section 3111 of the Internal Revenue Code of 1954, 
with respect to any or all of its employees, for part or all of 
a cost reporting period, and was not subject to such taxes with 
respect to any or all of its employees for all or part of the 
12-month base cost reporting period referred to in subsection 
(b)(3)(A)(i), the Secretary shall provide for an adjustment by 
increasing the base period amount described in such subsection 
for such hospital by an amount equal to the amount of such 
taxes which would have been paid or accrued by such hospital 
for such base period if such hospital had been subject to such 
taxes for all of such base period with respect to all its 
employees, minus the amount of any such taxes actually paid or 
accrued for such base period.
  (7)(A) Notwithstanding paragraph (1), in the case of a 
hospital or unit that is within a class of hospital described 
in subparagraph (B) which first receives payments under this 
section on or after October 1, 1997--
          (i) for each of the first 2 cost reporting periods 
        for which the hospital has a settled cost report, the 
        amount of the payment with respect to operating costs 
        described in paragraph (1) under part A on a per 
        discharge or per admission basis (as the case may be) 
        is equal to the lesser of--
                  (I) the amount of operating costs for such 
                respective period, or
                  (II) 110 percent of the national median (as 
                estimated by the Secretary) of the target 
                amount for hospitals in the same class as the 
                hospital for cost reporting periods ending 
                during fiscal year 1996, updated by the 
                hospital market basket increase percentage to 
                the fiscal year in which the hospital first 
                received payments under this section, as 
                adjusted under subparagraph (C); and
          (ii) for purposes of computing the target amount for 
        the subsequent cost reporting period, the target amount 
        for the preceding cost reporting period is equal to the 
        amount determined under clause (i) for such preceding 
        period.
  (B) For purposes of this paragraph, each of the following 
shall be treated as a separate class of hospital:
          (i) Hospitals described in clause (i) of subsection 
        (d)(1)(B) and psychiatric units described in the matter 
        following clause (v) of such subsection.
          (ii) Hospitals described in clause (ii) of such 
        subsection and rehabilitation units described in the 
        matter following clause (v) of such subsection.
          (iii) Hospitals described in clause (iv) of such 
        subsection.
  (C) In applying subparagraph (A)(i)(II) in the case of a 
hospital or unit, the Secretary shall provide for an 
appropriate adjustment to the labor-related portion of the 
amount determined under such subparagraph to take into account 
differences between average wage-related costs in the area of 
the hospital and the national average of such costs within the 
same class of hospital.
  (c)(1) The Secretary may provide, in his discretion, that 
payment with respect to services provided by a hospital in a 
State may be made in accordance with a hospital reimbursement 
control system in a State, rather than in accordance with the 
other provisions of this title, if the chief executive officer 
of the State requests such treatment and if--
          (A) the Secretary determines that the system, if 
        approved under this subsection, will apply (i) to 
        substantially all non- Federal acute care hospitals (as 
        defined by the Secretary) in the State and (ii) to the 
        review of at least 75 percent of all revenues or 
        expenses in the State for inpatient hospital services 
        and of revenues or expenses for inpatient hospital 
        services provided under the State's plan approved under 
        title XIX;
          (B) the Secretary has been provided satisfactory 
        assurances as to the equitable treatment under the 
        system of all entities (including Federal and State 
        programs) that pay hospitals for inpatient hospital 
        services, of hospital employees, and of hospital 
        patients;
          (C) the Secretary has been provided satisfactory 
        assurances that under the system, over 36-month periods 
        (the first such period beginning with the first month 
        in which this subsection applies to that system in the 
        State), the amount of payments made under this title 
        under such system will not exceed the amount of 
        payments which would otherwise have been made under 
        this title not using such system;
          (D) the Secretary determines that the system will not 
        preclude an eligible organization (as defined in 
        section 1876(b)) from negotiating directly with 
        hospitals with respect to the organization's rate of 
        payment for inpatient hospital services; and
          (E) the Secretary determines that the system requires 
        hospitals to meet the requirement of section 
        1866(a)(1)(G) and the system provides for the exclusion 
        of certain costs in accordance with section 1862(a)(14) 
        (except for such waivers thereof as the Secretary 
        provides by regulation).
The Secretary cannot deny the application of a State under this 
subsection on the ground that the State's hospital 
reimbursement control system is based on a payment methodology 
other than on the basis of a diagnosis-related group or on the 
ground that the amount of payments made under this title under 
such system must be less than the amount of payments which 
would otherwise have been made under this title not using such 
system. If the Secretary determines that the conditions 
described in subparagraph (C) are based on maintaining payment 
amounts at no more than a specified percentage increase above 
the payment amounts in a base period, the State has the option 
of applying such test (for inpatient hospital services under 
part A) on an aggregate payment basis or on the basis of the 
amount of payment per inpatient discharge or admission. If the 
Secretary determines that the conditions described in 
subparagraph (C) are based on maintaining aggregate payment 
amounts below a national average percentage increase in total 
payments under part A for inpatient hospital services, the 
Secretary cannot deny the application of a State under this 
subsection on the ground that the State's rate of increase in 
such payments for such services must be less than such national 
average rate of increase.
  (2) In determining under paragraph (1)(C) the amount of 
payment which would otherwise have been made under this title 
for a State, the Secretary may provide for appropriate 
adjustment of such amount to take into account previous 
reductions effected in the amount of payments made under this 
title in the State due to the operation of the hospital 
reimbursement control system in the State if the system has 
resulted in an aggregate rate of increase in operating costs of 
inpatient hospital services (as defined in subsection (a)(4)) 
under this title for hospitals in the State which is less than 
the aggregate rate of increase in such costs under this title 
for hospitals in the United States.
  (3) The Secretary shall discontinue payments under a system 
described in paragraph (1) if the Secretary--
          (A) determines that the system no longer meets the 
        requirements of subparagraphs (A), (D), and (E) of 
        paragraph (1) and, if applicable, the requirements of 
        paragraph (5), or
          (B) has reason to believe that the assurances 
        described in subparagraph (B) or (C) of paragraph (1) 
        (or, if applicable, in paragraph (5)) are not being (or 
        will not be) met.
  (4) The Secretary shall approve the request of a State under 
paragraph (1) with respect to a hospital reimbursement control 
system if--
          (A) the requirements of subparagraphs (A), (B), (C), 
        (D), and (E) of paragraph (1) have been met with 
        respect to the system, and
          (B) with respect to that system a waiver of certain 
        requirements of title XVIII of the Social Security Act 
        has been approved on or before (and which is in effect 
        as of) the date of the enactment of the Social Security 
        Amendments of 1983, pursuant to section 402(a) of the 
        Social Security Amendments of 1967 or section 222(a) of 
        the Social Security Amendments of 1972.
With respect to a State system described in this paragraph, the 
Secretary shall judge the effectiveness of such system on the 
basis of its rate of increase or inflation in inpatient 
hospital payments for individuals under this title, as compared 
to the national rate of increase or inflation for such 
payments, with the State retaining the option to have the test 
applied on the basis of the aggregate payments under the State 
system as compared to aggregate payments which would have been 
made under the national system since October 1, 1984, to the 
most recent date for which annual data are available.
  (5) The Secretary shall approve the request of a State under 
paragraph (1) with respect to a hospital reimbursement control 
system if--
          (A) the requirements of subparagraphs (A), (B), (C), 
        (D), and (E) of paragraph (1) have been met with 
        respect to the system;
          (B) the Secretary determines that the system--
                  (i) is operated directly by the State or by 
                an entity designated pursuant to State law,
                  (ii) provides for payment of hospitals 
                covered under the system under a methodology 
                (which sets forth exceptions and adjustments, 
                as well as any method for changes in the 
                methodology) by which rates or amounts to be 
                paid for hospital services during a specified 
                period are established under the system prior 
                to the defined rate period, and
                  (iii) hospitals covered under the system will 
                make such reports (in lieu of cost and other 
                reports, identified by the Secretary, otherwise 
                required under this title) as the Secretary may 
                require in order to properly monitor assurances 
                provided under this subsection;
          (C) the State has provided the Secretary with 
        satisfactory assurances that operation of the system 
        will not result in any change in hospital admission 
        practices which result in--
                  (i) a significant reduction in the proportion 
                of patients (receiving hospital services 
                covered under the system) who have no third-
                party coverage and who are unable to pay for 
                hospital services,
                  (ii) a significant reduction in the 
                proportion of individuals admitted to hospitals 
                for inpatient hospital services for which 
                payment is (or is likely to be) less than the 
                anticipated charges for or costs of such 
                services,
                  (iii) the refusal to admit patients who would 
                be expected to require unusually costly or 
                prolonged treatment for reasons other than 
                those related to the appropriateness of the 
                care available at the hospital, or
                  (iv) the refusal to provide emergency 
                services to any person who is in need of 
                emergency services if the hospital provides 
                such services;
          (D) any change by the State in the system which has 
        the effect of materially reducing payments to hospitals 
        can only take effect upon 60 days notice to the 
        Secretary and to the hospitals the payment to which is 
        likely to be materially affected by the change; and
          (E) the State has provided the Secretary with 
        satisfactory assurances that in the development of the 
        system the State has consulted with local governmental 
        officials concerning the impact of the system on public 
        hospitals.
The Secretary shall respond to requests of States under this 
paragraph within 60 days of the date the request is submitted 
to the Secretary.
  (6) If the Secretary determines that the assurances described 
in paragraph (1)(C) have not been met with respect to any 36-
month period, the Secretary may reduce payments under this 
title to hospitals under the system in an amount equal to the 
amount by which the payment under this title under such system 
for such period exceeded the amount of payments which would 
otherwise have been made under this title not using such 
system.
  (7) In the case of a State which made a request under 
paragraph (5) before December 31, 1984, for the approval of a 
State hospital reimbursement control system and which request 
was approved--
          (A) in applying paragraphs (1)(C) and (6), a 
        reference to a ``36-month period'' is deemed a 
        reference to a ``48-month period'', and
          (B) in order to allow the State the opportunity to 
        provide the assurances described in paragraph (1)(C) 
        for a 48-month period, the Secretary may not 
        discontinue payments under the system, under the 
        authority of paragraph (3)(A) because the Secretary has 
        reason to believe that such assurances are not being 
        (or will not be) met, before July 1, 1986.
  (d)(1)(A) Notwithstanding section 1814(b) but subject to the 
provisions of section 1813, the amount of the payment with 
respect to the operating costs of inpatient hospital services 
(as defined in subsection (a)(4)) of a subsection (d) hospital 
(as defined in subparagraph (B)) for inpatient hospital 
discharges in a cost reporting period or in a fiscal year--
          (i) beginning on or after October 1, 1983, and before 
        October 1, 1984, is equal to the sum of--
                  (I) the target percentage (as defined in 
                subparagraph (C)) of the hospital's target 
                amount for the cost reporting period (as 
                defined in subsection (b)(3)(A), but determined 
                without the application of subsection (a)), and
                  (II) the DRG percentage (as defined in 
                subparagraph (C)) of the regional adjusted DRG 
                prospective payment rate determined under 
                paragraph (2) for such discharges;
          (ii) beginning on or after October 1, 1984, and 
        before October 1, 1987, is equal to the sum of--
                  (I) the target percentage (as defined in 
                subparagraph (C)) of the hospital's target 
                amount for the cost reporting period (as 
                defined in subsection (b)(3)(A), but determined 
                without the application of subsection (a)), and
                  (II) the DRG percentage (as defined in 
                subparagraph (C)) of the applicable combined 
                adjusted DRG prospective payment rate 
                determined under subparagraph (D) for such 
                discharges; or
          (iii) beginning on or after April 1, 1988, is equal 
        to
                  (I) the national adjusted DRG prospective 
                payment rate determined under paragraph (3) for 
                such discharges, or
                  (II) for discharges occurring during a fiscal 
                year ending on or before September 30, 1996, 
                the sum of 85 percent of the national adjusted 
                DRG prospective payment rate determined under 
                paragraph (3) for such discharges and 15 
                percent of the regional adjusted DRG 
                prospective payment rate determined under such 
                paragraph, but only if the average standardized 
                amount (described in clause (i)(I) or clause 
                (ii)(I) of paragraph (3)(D)) for hospitals 
                within the region of, and in the same large 
                urban or other area (or, for discharges 
                occurring during a fiscal year ending on or 
                before September 30, 1994, the same rural, 
                large urban, or other urban area) as, the 
                hospital is greater than the average 
                standardized amount (described in the 
                respective clause) for hospitals within the 
                United States in that type of area for 
                discharges occurring during such fiscal year.
  (B) As used in this section, the term ``subsection (d) 
hospital'' means a hospital located in one of the fifty States 
or the District of Columbia other than--
          (i) a psychiatric hospital (as defined in section 
        1861(f)),
          (ii) a rehabilitation hospital (as defined by the 
        Secretary),
          (iii) a hospital whose inpatients are predominantly 
        individuals under 18 years of age,
          (iv) a hospital which has an average inpatient length 
        of stay (as determined by the Secretary) of greater 
        than 25 days,
          (v)(I) a hospital that the Secretary has classified, 
        at any time on or before December 31, 1990, (or, in the 
        case of a hospital that, as of the date of the 
        enactment of this clause, is located in a State 
        operating a demonstration project under section 
        1814(b), on or before December 31, 1991) for purposes 
        of applying exceptions and adjustments to payment 
        amounts under this subsection, as a hospital involved 
        extensively in treatment for or research on cancer,
          (II) a hospital that was recognized as a 
        comprehensive cancer center or clinical cancer research 
        center by the National Cancer Institute of the National 
        Institutes of Health as of April 20, 1983, that is 
        located in a State which, as of December 19, 1989, was 
        not operating a demonstration project under section 
        1814(b), that applied and was denied, on or before 
        December 31, 1990, for classification as a hospital 
        involved extensively in treatment for or research on 
        cancer under this clause (as in effect on the day 
        before the date of the enactment of this subclause), 
        that as of the date of the enactment of this subclause, 
        is licensed for less than 50 acute care beds, and that 
        demonstrates for the 4-year period ending on December 
        31, 1996, that at least 50 percent of its total 
        discharges have a principal finding of neoplastic 
        disease, as defined in subparagraph (E), or
          (III) a hospital that was recognized as a clinical 
        cancer research center by the National Cancer Institute 
        of the National Institutes of Health as of February 18, 
        1998, that has never been reimbursed for inpatient 
        hospital services pursuant to a reimbursement system 
        under a demonstration project under section 1814(b), 
        that is a freestanding facility organized primarily for 
        treatment of and research on cancer and is not a unit 
        of another hospital, that as of the date of the 
        enactment of this subclause, is licensed for 162 acute 
        care beds, and that demonstrates for the 4-year period 
        ending on June 30, 1999, that at least 50 percent of 
        its total discharges have a principal finding of 
        neoplastic disease, as defined in subparagraph (E), or
          (vi) a hospital that first received payment under 
        this subsection in 1986 which has an average inpatient 
        length of stay (as determined by the Secretary) of 
        greater than 20 days and that has 80 percent or more of 
        its annual medicare inpatient discharges with a 
        principal diagnosis that reflects a finding of 
        neoplastic disease in the 12-month cost reporting 
        period ending in fiscal year 1997;
and, in accordance with regulations of the Secretary, does not 
include a psychiatric or rehabilitation unit of the hospital 
which is a distinct part of the hospital (as defined by the 
Secretary). A hospital that was classified by the Secretary on 
or before September 30, 1995, as a hospital described in clause 
(iv) (as in effect as of such date) shall continue to be so 
classified (or, in the case of a hospital described in clause 
(iv)(II), as so in effect, shall be classified under clause 
(vi) on and after the effective date of such clause (vi) and 
for cost reporting periods beginning on or after January 1, 
2015, shall not be subject to subsection (m) as of the date of 
such classification) notwithstanding that it is located in the 
same building as, or on the same campus as, another hospital.
  (C) For purposes of this subsection, for cost reporting 
periods beginning--
          (i) on or after October 1, 1983, and before October 
        1, 1984, the ``target percentage'' is 75 percent and 
        the ``DRG percentage'' is 25 percent;
          (ii) on or after October 1, 1984, and before October 
        1, 1985, the ``target percentage'' is 50 percent and 
        the ``DRG percentage'' is 50 percent;
          (iii) on or after October 1, 1985, and before October 
        1, 1986, the ``target percentage'' is 45 percent and 
        the ``DRG percentage'' is 55 percent; and
          (iv) on or after October 1, 1986, and before October 
        1, 1987, the ``target percentage'' is 25 percent and 
        the ``DRG percentage'' is 75 percent.
  (D) For purposes of subparagraph (A)(ii)(II), the 
``applicable combined adjusted DRG prospective payment rate'' 
for discharges occurring--
          (i) on or after October 1, 1984, and before October 
        1, 1986, is a combined rate consisting of 25 percent of 
        the national adjusted DRG prospective payment rate, and 
        75 percent of the regional adjusted DRG prospective 
        payment rate, determined under paragraph (3) for such 
        discharges; and
          (ii) on or after October 1, 1986, and before October 
        1, 1987, is a combined rate consisting of 50 percent of 
        the national adjusted DRG prospective payment rate, and 
        50 percent of the regional adjusted DRG prospective 
        payment rate, determined under paragraph (3) for such 
        discharges.
  (E) For purposes of subclauses (II) and (III) of subparagraph 
(B)(v) only, the term ``principal finding of neoplastic 
disease'' means the condition established after study to be 
chiefly responsible for occasioning the admission of a patient 
to a hospital, except that only discharges with ICD-9-CM 
principal diagnosis codes of 140 through 239, V58.0, V58.1, 
V66.1, V66.2, or 990 will be considered to reflect such a 
principal diagnosis.
  (2) The Secretary shall determine a national adjusted DRG 
prospective payment rate, for each inpatient hospital discharge 
in fiscal year 1984 involving inpatient hospital services of a 
subsection (d) hospital in the United States, and shall 
determine a regional adjusted DRG prospective payment rate for 
such discharges in each region, for which payment may be made 
under part A of this title. Each such rate shall be determined 
for hospitals located in urban or rural areas within the United 
States or within each such region, respectively, as follows:
          (A) Determining allowable individual hospital costs 
        for base period.--The Secretary shall determine the 
        allowable operating costs per discharge of inpatient 
        hospital services for the hospital for the most recent 
        cost reporting period for which data are available.
          (B) Updating for fiscal year 1984.--The Secretary 
        shall update each amount determined under subparagraph 
        (A) for fiscal year 1984 by--
                  (i) updating for fiscal year 1983 by the 
                estimated average rate of change of hospital 
                costs industry-wide between the cost reporting 
                period used under such subparagraph and fiscal 
                year 1983 and the most recent case-mix data 
                available, and
                  (ii) projecting for fiscal year 1984 by the 
                applicable percentage increase (as defined in 
                subsection (b)(3)(B)) for fiscal year 1984.
          (C) Standardizing amounts.--The Secretary shall 
        standardize the amount updated under subparagraph (B) 
        for each hospital by--
                  (i) excluding an estimate of indirect medical 
                education costs (taking into account, for 
                discharges occurring after September 30, 1986, 
                the amendments made by section 9104(a) of the 
                Medicare and Medicaid Budget Reconciliation 
                Amendments of 1985), except that the Secretary 
                shall not take into account any reduction in 
                the amount of additional payments under 
                paragraph (5)(B)(ii) resulting from the 
                amendment made by section 4621(a)(1) of the 
                Balanced Budget Act of 1997 or any additional 
                payments under such paragraph resulting from 
                the application of section 111 of the Medicare, 
                Medicaid, and SCHIP Balanced Budget Refinement 
                Act of 1999, of section 302 of the Medicare, 
                Medicaid, and SCHIP Benefits Improvement and 
                Protection Act of 2000, or the Medicare 
                Prescription Drug, Improvement, and 
                Modernization Act of 2003,
                  (ii) adjusting for variations among hospitals 
                by area in the average hospital wage level,
                  (iii) adjusting for variations in case mix 
                among hospitals, and
                  (iv) for discharges occurring on or after 
                October 1, 1986, excluding an estimate of the 
                additional payments to certain hospitals to be 
                made under paragraph (5)(F), except that the 
                Secretary shall not exclude additional payments 
                under such paragraph made as a result of the 
                enactment of section 6003(c) of the Omnibus 
                Budget Reconciliation Act of 1989, the 
                enactment of section 4002(b) of the Omnibus 
                Budget Reconciliation Act of 1990, the 
                enactment of section 303 of the Medicare, 
                Medicaid, and SCHIP Benefits Improvement and 
                Protection Act of 2000, or the enactment of 
                section 402(a)(1) of the Medicare Prescription 
                Drug, Improvement, and Modernization Act of 
                2003.
          (D) Computing urban and rural averages.--The 
        Secretary shall compute an average of the standardized 
        amounts determined under subparagraph (C) for the 
        United States and for each region--
                  (i) for all subsection (d) hospitals located 
                in an urban area within the United States or 
                that region, respectively, and
                  (ii) for all subsection (d) hospitals located 
                in a rural area within the United States or 
                that region, respectively.
        For purposes of this subsection, the term ``region'' 
        means one of the nine census divisions, comprising the 
        fifty States and the District of Columbia, established 
        by the Bureau of the Census for statistical and 
        reporting purposes; the term ``urban area'' means an 
        area within a Metropolitan Statistical Area (as defined 
        by the Office of Management and Budget) or within such 
        similar area as the Secretary has recognized under 
        subsection (a) by regulation; the term ``large urban 
        area'' means, with respect to a fiscal year, such an 
        urban area which the Secretary determines (in the 
        publications described in subsection (e)(5) before the 
        fiscal year) has a population of more than 1,000,000 
        (as determined by the Secretary based on the most 
        recent available population data published by the 
        Bureau of the Census); and the term ``rural area'' 
        means any area outside such an area or similar area. A 
        hospital located in a Metropolitan Statistical Area 
        shall be deemed to be located in the region in which 
        the largest number of the hospitals in the same 
        Metropolitan Statistical Area are located, or, at the 
        option of the Secretary, the region in which the 
        majority of the inpatient discharges (with respect to 
        which payments are made under this title) from 
        hospitals in the same Metropolitan Statistical Area are 
        made.
          (E) Reducing for value of outlier payments.--The 
        Secretary shall reduce each of the average standardized 
        amounts determined under subparagraph (D) by a 
        proportion equal to the proportion (estimated by the 
        Secretary) of the amount of payments under this 
        subsection based on DRG prospective payment rates which 
        are additional payments described in paragraph (5)(A) 
        (relating to outlier payments).
          (F) Maintaining budget neutrality.--The Secretary 
        shall adjust each of such average standardized amounts 
        as may be required under subsection (e)(1)(B) for that 
        fiscal year.
          (G) Computing drg-specific rates for urban and rural 
        hospitals in the united states and in each region.--For 
        each discharge classified within a diagnosis-related 
        group, the Secretary shall establish a national DRG 
        prospective payment rate and shall establish a regional 
        DRG prospective payment rate for each region, each of 
        which is equal--
                  (i) for hospitals located in an urban area in 
                the United States or that region 
                (respectively), to the product of--
                          (I) the average standardized amount 
                        (computed under subparagraph (D), 
                        reduced under subparagraph (E), and 
                        adjusted under subparagraph (F)) for 
                        hospitals located in an urban area in 
                        the United States or that region, and
                          (II) the weighting factor (determined 
                        under paragraph (4)(B)) for that 
                        diagnosis-related group; and
                  (ii) for hospitals located in a rural area in 
                the United States or that region 
                (respectively), to the product of--
                          (I) the average standardized amount 
                        (computed under subparagraph (D), 
                        reduced under subparagraph (E), and 
                        adjusted under subparagraph (F)) for 
                        hospitals located in a rural area in 
                        the United States or that region, and
                          (II) the weighting factor (determined 
                        under paragraph (4)(B)) for that 
                        diagnosis-related group.
          (H) Adjusting for different area wage levels.--The 
        Secretary shall adjust the proportion, (as estimated by 
        the Secretary from time to time) of hospitals' costs 
        which are attributable to wages and wage-related costs, 
        of the national and regional DRG prospective payment 
        rates computed under subparagraph (G) for area 
        differences in hospital wage levels by a factor 
        (established by the Secretary) reflecting the relative 
        hospital wage level in the geographic area of the 
        hospital compared to the national average hospital wage 
        level.
  (3) The Secretary shall determine a national adjusted DRG 
prospective payment rate, for each inpatient hospital discharge 
in a fiscal year after fiscal year 1984 involving inpatient 
hospital services of a subsection (d) hospital in the United 
States, and shall determine, for fiscal years before fiscal 
year 1997, a regional adjusted DRG prospective payment rate for 
such discharges in each region for which payment may be made 
under part A of this title. Each such rate shall be determined 
for hospitals located in large urban, other urban, or rural 
areas within the United States and within each such region, 
respectively, as follows:
          (A) Updating previous standardized amounts.--(i) For 
        discharges occurring in a fiscal year beginning before 
        October 1, 1987, the Secretary shall compute an average 
        standardized amount for hospitals located in an urban 
        area and for hospitals located in a rural area within 
        the United States and for hospitals located in an urban 
        area and for hospitals located in a rural area within 
        each region, equal to the respective average 
        standardized amount computed for the previous fiscal 
        year under paragraph (2)(D) or under this subparagraph, 
        increased for the fiscal year involved by the 
        applicable percentage increase under subsection 
        (b)(3)(B). With respect to discharges occurring on or 
        after October 1, 1987, the Secretary shall compute 
        urban and rural averages on the basis of discharge 
        weighting rather than hospital weighting, making 
        appropriate adjustments to ensure that computation on 
        such basis does not result in total payments under this 
        section that are greater or less than the total 
        payments that would have been made under this section 
        but for this sentence, and making appropriate changes 
        in the manner of determining the reductions under 
        subparagraph (C)(ii).
          (ii) For discharges occurring in a fiscal year 
        beginning on or after October 1, 1987, and ending on or 
        before September 30, 1994, the Secretary shall compute 
        an average standardized amount for hospitals located in 
        a large urban area, for hospitals located in a rural 
        area, and for hospitals located in other urban areas, 
        within the United States and within each region, equal 
        to the respective average standardized amount computed 
        for the previous fiscal year under this subparagraph 
        increased by the applicable percentage increase under 
        subsection (b)(3)(B)(i) with respect to hospitals 
        located in the respective areas for the fiscal year 
        involved.
          (iii) For discharges occurring in the fiscal year 
        beginning on October 1, 1994, the average standardized 
        amount for hospitals located in a rural area shall be 
        equal to the average standardized amount for hospitals 
        located in an urban area. For discharges occurring on 
        or after October 1, 1994, the Secretary shall adjust 
        the ratio of the labor portion to non-labor portion of 
        each average standardized amount to equal such ratio 
        for the national average of all standardized amounts.
          (iv)(I) Subject to subclause (II), for discharges 
        occurring in a fiscal year beginning on or after 
        October 1, 1995, the Secretary shall compute an average 
        standardized amount for hospitals located in a large 
        urban area and for hospitals located in other areas 
        within the United States and within each region equal 
        to the respective average standardized amount computed 
        for the previous fiscal year under this subparagraph 
        increased by the applicable percentage increase under 
        subsection (b)(3)(B)(i) with respect to hospitals 
        located in the respective areas for the fiscal year 
        involved.
          (II) For discharges occurring in a fiscal year 
        (beginning with fiscal year 2004), the Secretary shall 
        compute a standardized amount for hospitals located in 
        any area within the United States and within each 
        region equal to the standardized amount computed for 
        the previous fiscal year under this subparagraph for 
        hospitals located in a large urban area (or, beginning 
        with fiscal year 2005, for all hospitals in the 
        previous fiscal year) increased by the applicable 
        percentage increase under subsection (b)(3)(B)(i) for 
        the fiscal year involved.
          (v) Average standardized amounts computed under this 
        paragraph shall be adjusted to reflect the most recent 
        case-mix data available.
          (vi) Insofar as the Secretary determines that the 
        adjustments under paragraph (4)(C)(i) for a previous 
        fiscal year (or estimates that such adjustments for a 
        future fiscal year) did (or are likely to) result in a 
        change in aggregate payments under this subsection 
        during the fiscal year that are a result of changes in 
        the coding or classification of discharges that do not 
        reflect real changes in case mix, the Secretary may 
        adjust the average standardized amounts computed under 
        this paragraph for subsequent fiscal years so as to 
        eliminate the effect of such coding or classification 
        changes.
          (B) Reducing for value of outlier payments.--The 
        Secretary shall reduce each of the average standardized 
        amounts determined under subparagraph (A) by a factor 
        equal to the proportion of payments under this 
        subsection (as estimated by the Secretary) based on DRG 
        prospective payment amounts which are additional 
        payments described in paragraph (5)(A) (relating to 
        outlier payments).
          (C)(i) Maintaining budget neutrality for fiscal year 
        1985.--For discharges occurring in fiscal year 1985, 
        the Secretary shall adjust each of such average 
        standardized amounts as may be required under 
        subsection (e)(1)(B) for that fiscal year.
          (ii) Reducing for savings from amendment to indirect 
        teaching adjustment for discharges after September 30, 
        1986.--For discharges occurring after September 30, 
        1986, the Secretary shall further reduce each of the 
        average standardized amounts (in a proportion which 
        takes into account the differing effects of the 
        standardization effected under paragraph (2)(C)(i)) so 
        as to provide for a reduction in the total of the 
        payments (attributable to this paragraph) made for 
        discharges occurring on or after October 1, 1986, of an 
        amount equal to the estimated reduction in the payment 
        amounts under paragraph (5)(B) that would have resulted 
        from the enactment of the amendments made by section 
        9104 of the Medicare and Medicaid Budget Reconciliation 
        Amendments of 1985 and by section 4003(a)(1) of the 
        Omnibus Budget Reconciliation Act of 1987 if the factor 
        described in clause (ii)(II) of paragraph (5)(B) 
        (determined without regard to amendments made by the 
        Omnibus Budget Reconciliation Act of 1990) were applied 
        for discharges occurring on or after such date instead 
        of the factor described in clause (ii) of that 
        paragraph.
          (D) Computing drg-specific rates for hospitals.--For 
        each discharge classified within a diagnosis-related 
        group, the Secretary shall establish for the fiscal 
        year a national DRG prospective payment rate and shall 
        establish, for fiscal years before fiscal year 1997, a 
        regional DRG prospective payment rate for each region 
        which is equal--
                  (i) for fiscal years before fiscal year 2004, 
                for hospitals located in a large urban area in 
                the United States or that region 
                (respectively), to the product of--
                          (I) the average standardized amount 
                        (computed under subparagraph (A), 
                        reduced under subparagraph (B), and 
                        adjusted or reduced under subparagraph 
                        (C)) for the fiscal year for hospitals 
                        located in such a large urban area in 
                        the United States or that region, and
                          (II) the weighting factor (determined 
                        under paragraph (4)(B)) for that 
                        diagnosis-related group;
                  (ii) for fiscal years before fiscal year 
                2004, for hospitals located in other areas in 
                the United States or that region 
                (respectively), to the product of--
                          (I) the average standardized amount 
                        (computed under subparagraph (A), 
                        reduced under subparagraph (B), and 
                        adjusted or reduced under subparagraph 
                        (C)) for the fiscal year for hospitals 
                        located in other areas in the United 
                        States or that region, and
                          (II) the weighting factor (determined 
                        under paragraph (4)(B)) for that 
                        diagnosis-related group; and
                  (iii) for a fiscal year beginning after 
                fiscal year 2003, for hospitals located in all 
                areas, to the product of--
                          (I) the applicable standardized 
                        amount (computed under subparagraph 
                        (A)), reduced under subparagraph (B), 
                        and adjusted or reduced under 
                        subparagraph (C) for the fiscal year; 
                        and
                          (II) the weighting factor (determined 
                        under paragraph (4)(B)) for that 
                        diagnosis-related group.
          (E) Adjusting for different area wage levels.--
                  (i) In general.--Except as provided in clause 
                (ii) or (iii), the Secretary shall adjust the 
                proportion, (as estimated by the Secretary from 
                time to time) of hospitals' costs which are 
                attributable to wages and wage-related costs, 
                of the DRG prospective payment rates computed 
                under subparagraph (D) for area differences in 
                hospital wage levels by a factor (established 
                by the Secretary) reflecting the relative 
                hospital wage level in the geographic area of 
                the hospital compared to the national average 
                hospital wage level. Not later than October 1, 
                1990, and October 1, 1993 (and at least every 
                12 months thereafter), the Secretary shall 
                update the factor under the preceding sentence 
                on the basis of a survey conducted by the 
                Secretary (and updated as appropriate) of the 
                wages and wage-related costs of subsection (d) 
                hospitals in the United States. Not less often 
                than once every 3 years the Secretary (through 
                such survey or otherwise) shall measure the 
                earnings and paid hours of employment by 
                occupational category and shall exclude data 
                with respect to the wages and wage-related 
                costs incurred in furnishing skilled nursing 
                facility services. Any adjustments or updates 
                made under this subparagraph for a fiscal year 
                (beginning with fiscal year 1991) shall be made 
                in a manner that assures that the aggregate 
                payments under this subsection in the fiscal 
                year are not greater or less than those that 
                would have been made in the year without such 
                adjustment. The Secretary shall apply the 
                previous sentence for any period as if the 
                amendments made by section 403(a)(1) of the 
                Medicare Prescription Drug, Improvement, and 
                Modernization Act of 2003 and the amendments 
                made by section 10324(a)(1) of the Patient 
                Protection and Affordable Care Act had not been 
                enacted.
                  (ii) Alternative proportion to be adjusted 
                beginning in fiscal year 2005.--For discharges 
                occurring on or after October 1, 2004, the 
                Secretary shall substitute ``62 percent'' for 
                the proportion described in the first sentence 
                of clause (i), unless the application of this 
                clause would result in lower payments to a 
                hospital than would otherwise be made.
                  (iii) Floor on area wage index for hospitals 
                in frontier states.--
                          (I) In general.--Subject to subclause 
                        (IV), for discharges occurring on or 
                        after October 1, 2010, the area wage 
                        index applicable under this 
                        subparagraph to any hospital which is 
                        located in a frontier State (as defined 
                        in subclause (II)) may not be less than 
                        1.00.
                          (II) Frontier state defined.--In this 
                        clause, the term ``frontier State'' 
                        means a State in which at least 50 
                        percent of the counties in the State 
                        are frontier counties.
                          (III) Frontier county defined.--In 
                        this clause, the term ``frontier 
                        county'' means a county in which the 
                        population per square mile is less than 
                        6.
                          (IV) Limitation.--This clause shall 
                        not apply to any hospital located in a 
                        State that receives a non-labor related 
                        share adjustment under paragraph 
                        (5)(H).
  (4)(A) The Secretary shall establish a classification of 
inpatient hospital discharges by diagnosis-related groups and a 
methodology for classifying specific hospital discharges within 
these groups.
  (B) For each such diagnosis-related group the Secretary shall 
assign an appropriate weighting factor which reflects the 
relative hospital resources used with respect to discharges 
classified within that group compared to discharges classified 
within other groups.
  (C)(i) The Secretary shall adjust the classifications and 
weighting factors established under subparagraphs (A) and (B), 
for discharges in fiscal year 1988 and at least annually 
thereafter, to reflect changes in treatment patterns, 
technology (including a new medical service or technology under 
paragraph (5)(K)), and other factors which may change the 
relative use of hospital resources.
  (ii) For discharges in fiscal year 1990, the Secretary shall 
reduce the weighting factor for each diagnosis-related group by 
1.22 percent.
  (iii) Any such adjustment under clause (i) for discharges in 
a fiscal year (beginning with fiscal year 1991) shall be made 
in a manner that assures that the aggregate payments under this 
subsection for discharges in the fiscal year are not greater or 
less than those that would have been made for discharges in the 
year without such adjustment.
  (D)(i) For discharges occurring on or after October 1, 2008, 
the diagnosis-related group to be assigned under this paragraph 
for a discharge described in clause (ii) shall be a diagnosis-
related group that does not result in higher payment based on 
the presence of a secondary diagnosis code described in clause 
(iv).
  (ii) A discharge described in this clause is a discharge 
which meets the following requirements:
          (I) The discharge includes a condition identified by 
        a diagnosis code selected under clause (iv) as a 
        secondary diagnosis.
          (II) But for clause (i), the discharge would have 
        been classified to a diagnosis-related group that 
        results in a higher payment based on the presence of a 
        secondary diagnosis code selected under clause (iv).
          (III) At the time of admission, no code selected 
        under clause (iv) was present.
  (iii) As part of the information required to be reported by a 
hospital with respect to a discharge of an individual in order 
for payment to be made under this subsection, for discharges 
occurring on or after October 1, 2007, the information shall 
include the secondary diagnosis of the individual at admission.
  (iv) By not later than October 1, 2007, the Secretary shall 
select diagnosis codes associated with at least two conditions, 
each of which codes meets all of the following requirements (as 
determined by the Secretary):
          (I) Cases described by such code have a high cost or 
        high volume, or both, under this title.
          (II) The code results in the assignment of a case to 
        a diagnosis-related group that has a higher payment 
        when the code is present as a secondary diagnosis.
          (III) The code describes such conditions that could 
        reasonably have been prevented through the application 
        of evidence-based guidelines.
The Secretary may from time to time revise (through addition or 
deletion of codes) the diagnosis codes selected under this 
clause so long as there are diagnosis codes associated with at 
least two conditions selected for discharges occurring during 
any fiscal year.
  (v) In selecting and revising diagnosis codes under clause 
(iv), the Secretary shall consult with the Centers for Disease 
Control and Prevention and other appropriate entities.
  (vi) Any change resulting from the application of this 
subparagraph shall not be taken into account in adjusting the 
weighting factors under subparagraph (C)(i) or in applying 
budget neutrality under subparagraph (C)(iii).
  (5)(A)(i) For discharges occurring during fiscal years ending 
on or before September 30, 1997, the Secretary shall provide 
for an additional payment for a subsection (d) hospital for any 
discharge in a diagnosis-related group, the length of stay of 
which exceeds the mean length of stay for discharges within 
that group by a fixed number of days, or exceeds such mean 
length of stay by some fixed number of standard deviations, 
whichever is the fewer number of days.
  (ii) For cases which are not included in clause (i), a 
subsection (d) hospital may request additional payments in any 
case where charges, adjusted to cost, exceed a fixed multiple 
of the applicable DRG prospective payment rate, or exceed such 
other fixed dollar amount, whichever is greater, or for 
discharges in fiscal years beginning on or after October 1, 
1994, exceed the sum of the applicable DRG prospective payment 
rate plus any amounts payable under subparagraphs (B) and (F) 
plus a fixed dollar amount determined by the Secretary.
  (iii) The amount of such additional payment under clauses (i) 
and (ii) shall be determined by the Secretary and shall (except 
as payments under clause (i) are required to be reduced to take 
into account the requirements of clause (v)) approximate the 
marginal cost of care beyond the cutoff point applicable under 
clause (i) or (ii).
  (iv) The total amount of the additional payments made under 
this subparagraph for discharges in a fiscal year may not be 
less than 5 percent nor more than 6 percent of the total 
payments projected or estimated to be made based on DRG 
prospective payment rates for discharges in that year.
  (v) The Secretary shall provide that--
          (I) the day outlier percentage for fiscal year 1995 
        shall be 75 percent of the day outlier percentage for 
        fiscal year 1994;
          (II) the day outlier percentage for fiscal year 1996 
        shall be 50 percent of the day outlier percentage for 
        fiscal year 1994; and
          (III) the day outlier percentage for fiscal year 1997 
        shall be 25 percent of the day outlier percentage for 
        fiscal year 1994.
  (vi) For purposes of this subparagraph the term ``day outlier 
percentage'' means, for a fiscal year, the percentage of the 
total additional payments made by the Secretary under this 
subparagraph for discharges in that fiscal year which are 
additional payments under clause (i).
  (B) The Secretary shall provide for an additional payment 
amount for subsection (d) hospitals with indirect costs of 
medical education, in an amount computed in the same manner as 
the adjustment for such costs under regulations (in effect as 
of January 1, 1983) under subsection (a)(2), except as follows:
          (i) The amount of such additional payment shall be 
        determined by multiplying (I) the sum of the amount 
        determined under paragraph (1)(A)(ii)(II) (or, if 
        applicable, the amount determined under paragraph 
        (1)(A)(iii)) and, for cases qualifying for additional 
        payment under subparagraph (A)(i), the amount paid to 
        the hospital under subparagraph (A), by (II) the 
        indirect teaching adjustment factor described in clause 
        (ii).
          (ii) For purposes of clause (i)(II), the indirect 
        teaching adjustment factor is equal to c  
        (((1+r) to the nth power) - 1), where ``r'' is the 
        ratio of the hospital's full-time equivalent interns 
        and residents to beds and ``n'' equals .405. Subject to 
        clause (ix), for discharges occurring--
                  (I) on or after October 1, 1988, and before 
                October 1, 1997, ``c'' is equal to 1.89;
                  (II) during fiscal year 1998, ``c'' is equal 
                to 1.72;
                  (III) during fiscal year 1999, ``c'' is equal 
                to 1.6;
                  (IV) during fiscal year 2000, ``c'' is equal 
                to 1.47;
                  (V) during fiscal year 2001, ``c'' is equal 
                to 1.54;
                  (VI) during fiscal year 2002, ``c'' is equal 
                to 1.6;
                  (VII) on or after October 1, 2002, and before 
                April 1, 2004, ``c'' is equal to 1.35;
                  (VIII) on or after April 1, 2004, and before 
                October 1, 2004, ``c'' is equal to 1.47;
                  (IX) during fiscal year 2005, ``c'' is equal 
                to 1.42;
                  (X) during fiscal year 2006, ``c'' is equal 
                to 1.37;
                  (XI) during fiscal year 2007, ``c'' is equal 
                to 1.32; and
                  (XII) on or after October 1, 2007, ``c'' is 
                equal to 1.35.
          (iii) In determining such adjustment the Secretary 
        shall not distinguish between those interns and 
        residents who are employees of a hospital and those 
        interns and residents who furnish services to a 
        hospital but are not employees of such hospital.
          (iv)(I) Effective for discharges occurring on or 
        after October 1, 1997, and before July 1, 2010, all the 
        time spent by an intern or resident in patient care 
        activities under an approved medical residency training 
        program at an entity in a nonhospital setting shall be 
        counted towards the determination of full-time 
        equivalency if the hospital incurs all, or 
        substantially all, of the costs for the training 
        program in that setting.
          (II) Effective for discharges occurring on or after 
        July 1, 2010, all the time spent by an intern or 
        resident in patient care activities in a nonprovider 
        setting shall be counted towards the determination of 
        full-time equivalency if a hospital incurs the costs of 
        the stipends and fringe benefits of the intern or 
        resident during the time the intern or resident spends 
        in that setting. If more than one hospital incurs these 
        costs, either directly or through a third party, such 
        hospitals shall count a proportional share of the time, 
        as determined by written agreement between the 
        hospitals, that a resident spends training in that 
        setting.
          (v) In determining the adjustment with respect to a 
        hospital for discharges occurring on or after October 
        1, 1997, the total number of full-time equivalent 
        interns and residents in the fields of allopathic and 
        osteopathic medicine in either a hospital or 
        nonhospital setting may not exceed the number (or, 130 
        percent of such number in the case of a hospital 
        located in a rural area) of such full-time equivalent 
        interns and residents in the hospital with respect to 
        the hospital's most recent cost reporting period ending 
        on or before December 31, 1996. Rules similar to the 
        rules of subsection (h)(4)(F)(ii) shall apply for 
        purposes of this clause. The provisions of subsections 
        (h)(4)(H)(vi), (h)(7), and (h)(8) shall apply with 
        respect to the first sentence of this clause in the 
        same manner as they apply with respect to subsection 
        (h)(4)(F)(i).
          (vi) For purposes of clause (ii)--
                  (I) ``r'' may not exceed the ratio of the 
                number of interns and residents, subject to the 
                limit under clause (v), with respect to the 
                hospital for its most recent cost reporting 
                period to the hospital's available beds (as 
                defined by the Secretary) during that cost 
                reporting period, and
                  (II) for the hospital's cost reporting 
                periods beginning on or after October 1, 1997, 
                subject to the limits described in clauses (iv) 
                and (v), the total number of full-time 
                equivalent residents for payment purposes shall 
                equal the average of the actual full-time 
                equivalent resident count for the cost 
                reporting period and the preceding two cost 
                reporting periods.
        In the case of the first cost reporting period 
        beginning on or after October 1, 1997, subclause (II) 
        shall be applied by using the average for such period 
        and the preceding cost reporting period.
          (vii) If any cost reporting period beginning on or 
        after October 1, 1997, is not equal to twelve months, 
        the Secretary shall make appropriate modifications to 
        ensure that the average full-time equivalent residency 
        count pursuant to subclause (II) of clause (vi) is 
        based on the equivalent of full twelve-month cost 
        reporting periods.
          (viii) Rules similar to the rules of subsection 
        (h)(4)(H) shall apply for purposes of clauses (v) and 
        (vi).
          (ix) For discharges occurring on or after July 1, 
        2005, insofar as an additional payment amount under 
        this subparagraph is attributable to resident positions 
        redistributed to a hospital under subsection (h)(7)(B), 
        in computing the indirect teaching adjustment factor 
        under clause (ii) the adjustment shall be computed in a 
        manner as if ``c'' were equal to 0.66 with respect to 
        such resident positions.
          (x) For discharges occurring on or after July 1, 
        2011, insofar as an additional payment amount under 
        this subparagraph is attributable to resident positions 
        distributed to a hospital under subsection (h)(8)(B), 
        the indirect teaching adjustment factor shall be 
        computed in the same manner as provided under clause 
        (ii) with respect to such resident positions.
          (x)(I) The provisions of subparagraph (K) of 
        subsection (h)(4) shall apply under this subparagraph 
        in the same manner as they apply under such subsection.
                          (II) In determining the hospital's 
                        number of full-time equivalent 
                        residents for purposes of this 
                        subparagraph, all the time spent by an 
                        intern or resident in an approved 
                        medical residency training program in 
                        non-patient care activities, such as 
                        didactic conferences and seminars, as 
                        such time and activities are defined by 
                        the Secretary, that occurs in the 
                        hospital shall be counted toward the 
                        determination of full-time equivalency 
                        if the hospital--
                                  (aa) is recognized as a 
                                subsection (d) hospital;
                                  (bb) is recognized as a 
                                subsection (d) Puerto Rico 
                                hospital;
                                  (cc) is reimbursed under a 
                                reimbursement system authorized 
                                under section 1814(b)(3); or
                                  (dd) is a provider-based 
                                hospital outpatient department.
                          (III) In determining the hospital's 
                        number of full-time equivalent 
                        residents for purposes of this 
                        subparagraph, all the time spent by an 
                        intern or resident in an approved 
                        medical residency training program in 
                        research activities that are not 
                        associated with the treatment or 
                        diagnosis of a particular patient, as 
                        such time and activities are defined by 
                        the Secretary, shall not be counted 
                        toward the determination of full-time 
                        equivalency.
  (C)(i) The Secretary shall provide for such exceptions and 
adjustments to the payment amounts established under this 
subsection (other than under paragraph (9)) as the Secretary 
deems appropriate to take into account the special needs of 
regional and national referral centers (including those 
hospitals of 275 or more beds located in rural areas). A 
hospital which is classified as a rural hospital may appeal to 
the Secretary to be classified as a rural referral center under 
this clause on the basis of criteria (established by the 
Secretary) which shall allow the hospital to demonstrate that 
it should be so reclassified by reason of certain of its 
operating characteristics being similar to those of a typical 
urban hospital located in the same census region and which 
shall not require a rural osteopathic hospital to have more 
than 3,000 discharges in a year in order to be classified as a 
rural referral center. Such characteristics may include wages, 
scope of services, service area, and the mix of medical 
specialties. The Secretary shall publish the criteria not later 
than August 17, 1984, for implementation by October 1, 1984. An 
appeal allowed under this clause must be submitted to the 
Secretary (in such form and manner as the Secretary may 
prescribe) during the quarter before the first quarter of the 
hospital's cost reporting period (or, in the case of a cost 
reporting period beginning during October 1984, during the 
first quarter of that period), and the Secretary must make a 
final determination with respect to such appeal within 60 days 
after the date the appeal was submitted. Any payment 
adjustments necessitated by a reclassification based upon the 
appeal shall be effective at the beginning of such cost 
reporting period.
  (ii) The Secretary shall provide, under clause (i), for the 
classification of a rural hospital as a regional referral 
center if the hospital has a case mix index equal to or greater 
than the median case mix index for hospitals (other than 
hospitals with approved teaching programs) located in an urban 
area in the same region (as defined in paragraph (2)(D)), has 
at least 5,000 discharges a year or, if less, the median number 
of discharges in urban hospitals in the region in which the 
hospital is located (or, in the case of a rural osteopathic 
hospital, meets the criterion established by the Secretary 
under clause (i) with respect to the annual number of 
discharges for such hospitals), and meets any other criteria 
established by the Secretary under clause (i).
  (D)(i) For any cost reporting period beginning on or after 
April 1, 1990, with respect to a subsection (d) hospital which 
is a sole community hospital, payment under paragraph (1)(A) 
shall be--
          (I) an amount based on 100 percent of the hospital's 
        target amount for the cost reporting period, as defined 
        in subsection (b)(3)(C), or
          (II) the amount determined under paragraph 
        (1)(A)(iii),
whichever results in greater payment to the hospital.
  (ii) In the case of a sole community hospital that 
experiences, in a cost reporting period compared to the 
previous cost reporting period, a decrease of more than 5 
percent in its total number of inpatient cases due to 
circumstances beyond its control, the Secretary shall provide 
for such adjustment to the payment amounts under this 
subsection (other than under paragraph (9)) as may be necessary 
to fully compensate the hospital for the fixed costs it incurs 
in the period in providing inpatient hospital services, 
including the reasonable cost of maintaining necessary core 
staff and services.
  (iii) For purposes of this title, the term ``sole community 
hospital'' means any hospital--
          (I) that the Secretary determines is located more 
        than 35 road miles from another hospital,
          (II) that, by reason of factors such as the time 
        required for an individual to travel to the nearest 
        alternative source of appropriate inpatient care (in 
        accordance with standards promulgated by the 
        Secretary), location, weather conditions, travel 
        conditions, or absence of other like hospitals (as 
        determined by the Secretary), is the sole source of 
        inpatient hospital services reasonably available to 
        individuals in a geographic area who are entitled to 
        benefits under part A, or
          (III) that is located in a rural area and designated 
        by the Secretary as an essential access community 
        hospital under section 1820(i)(1) as in effect on 
        September 30, 1997.
  (iv) The Secretary shall promulgate a standard for 
determining whether a hospital meets the criteria for 
classification as a sole community hospital under clause 
(iii)(II) because of the time required for an individual to 
travel to the nearest alternative source of appropriate 
inpatient care.
  (v) If the Secretary determines that, in the case of a 
hospital located in a rural area and designated by the 
Secretary as an essential access community hospital under 
section 1820(i)(1) as in effect on September 30, 1997, the 
hospital has incurred increases in reasonable costs during a 
cost reporting period as a result of becoming a member of a 
rural health network (as defined in section 1820(d)) in the 
State in which it is located, and in incurring such increases, 
the hospital will increase its costs for subsequent cost 
reporting periods, the Secretary shall increase the hospital's 
target amount under subsection (b)(3)(C) to account for such 
incurred increases.
  (E)(i) The Secretary shall estimate the amount of 
reimbursement made for services described in section 
1862(a)(14) with respect to which payment was made under part B 
in the base reporting periods referred to in paragraph (2)(A) 
and with respect to which payment is no longer being made.
  (ii) The Secretary shall provide for an adjustment to the 
payment for subsection (d) hospitals in each fiscal year so as 
appropriately to reflect the net amount described in clause 
(i).
  (F)(i) Subject to subsection (r), for discharges occurring on 
or after May 1, 1986, the Secretary shall provide, in 
accordance with this subparagraph, for an additional payment 
amount for each subsection (d) hospital which--
          (I) serves a significantly disproportionate number of 
        low-income patients (as defined in clause (v)), or
          (II) is located in an urban area, has 100 or more 
        beds, and can demonstrate that its net inpatient care 
        revenues (excluding any of such revenues attributable 
        to this title or State plans approved under title XIX), 
        during the cost reporting period in which the 
        discharges occur, for indigent care from State and 
        local government sources exceed 30 percent of its total 
        of such net inpatient care revenues during the period.
  (ii) Subject to clause (ix), the amount of such payment for 
each discharge shall be determined by multiplying (I) the sum 
of the amount determined under paragraph (1)(A)(ii)(II) (or, if 
applicable, the amount determined under paragraph (1)(A)(iii)) 
and, for cases qualifying for additional payment under 
subparagraph (A)(i), the amount paid to the hospital under 
subparagraph (A) for that discharge, by (II) the 
disproportionate share adjustment percentage established under 
clause (iii) or (iv) for the cost reporting period in which the 
discharge occurs.
  (iii) The disproportionate share adjustment percentage for a 
cost reporting period for a hospital described in clause 
(i)(II) is equal to 35 percent.
  (iv) The disproportionate share adjustment percentage for a 
cost reporting period for a hospital that is not described in 
clause (i)(II) and that--
          (I) is located in an urban area and has 100 or more 
        beds or is described in the second sentence of clause 
        (v), is equal to the percent determined in accordance 
        with the applicable formula described in clause (vii);
          (II) is located in an urban area and has less than 
        100 beds, is equal to 5 percent or, subject to clause 
        (xiv) and for discharges occurring on or after April 1, 
        2001, is equal to the percent determined in accordance 
        with clause (xiii);
          (III) is located in a rural area and is not described 
        in subclause (IV) or (V) or in the second sentence of 
        clause (v), is equal to 4 percent or, subject to clause 
        (xiv) and for discharges occurring on or after April 1, 
        2001, is equal to the percent determined in accordance 
        with clause (xii);
          (IV) is located in a rural area, is classified as a 
        rural referral center under subparagraph (C), and is 
        classified as a sole community hospital under 
        subparagraph (D), is equal to 10 percent or, if 
        greater, the percent determined in accordance with the 
        applicable formula described in clause (viii) or, 
        subject to clause (xiv) and for discharges occurring on 
        or after April 1, 2001, the greater of the percentages 
        determined under clause (x) or (xi);
          (V) is located in a rural area, is classified as a 
        rural referral center under subparagraph (C), and is 
        not classified as a sole community hospital under 
        subparagraph (D), is equal to the percent determined in 
        accordance with the applicable formula described in 
        clause (viii) or, subject to clause (xiv) and for 
        discharges occurring on or after April 1, 2001, is 
        equal to the percent determined in accordance with 
        clause (xi); or
          (VI) is located in a rural area, is classified as a 
        sole community hospital under subparagraph (D), and is 
        not classified as a rural referral center under 
        subparagraph (C), is 10 percent or, subject to clause 
        (xiv) and for discharges occurring on or after April 1, 
        2001, is equal to the percent determined in accordance 
        with clause (x).
  (v) In this subparagraph, a hospital ``serves a significantly 
disproportionate number of low income patients'' for a cost 
reporting period if the hospital has a disproportionate patient 
percentage (as defined in clause (vi)) for that period which 
equals, or exceeds--
          (I) 15 percent, if the hospital is located in an 
        urban area and has 100 or more beds,
          (II) 30 percent (or 15 percent, for discharges 
        occurring on or after April 1, 2001), if the hospital 
        is located in a rural area and has more than 100 beds, 
        or is located in a rural area and is classified as a 
        sole community hospital under subparagraph (D),
          (III) 40 percent (or 15 percent, for discharges 
        occurring on or after April 1, 2001), if the hospital 
        is located in an urban area and has less than 100 beds, 
        or
          (IV) 45 percent (or 15 percent, for discharges 
        occurring on or after April 1, 2001), if the hospital 
        is located in a rural area and is not described in 
        subclause (II).
A hospital located in a rural area and with 500 or more beds 
also ``serves a significantly disproportionate number of low 
income patients'' for a cost reporting period if the hospital 
has a disproportionate patient percentage (as defined in clause 
(vi)) for that period which equals or exceeds a percentage 
specified by the Secretary.
  (vi) In this subparagraph, the term ``disproportionate 
patient percentage'' means, with respect to a cost reporting 
period of a hospital, the sum of--
          (I) the fraction (expressed as a percentage), the 
        numerator of which is the number of such hospital's 
        patient days for such period which were made up of 
        patients who (for such days) were entitled to benefits 
        under part A of this title and were entitled to 
        supplementary security income benefits (excluding any 
        State supplementation) under title XVI of this Act, and 
        the denominator of which is the number of such 
        hospital's patient days for such fiscal year which were 
        made up of patients who (for such days) were entitled 
        to benefits under part A of this title, and
          (II) the fraction (expressed as a percentage), the 
        numerator of which is the number of the hospital's 
        patient days for such period which consist of patients 
        who (for such days) were eligible for medical 
        assistance under a State plan approved under title XIX, 
        but who were not entitled to benefits under part A of 
        this title, and the denominator of which is the total 
        number of the hospital's patient days for such period.
In determining under subclause (II) the number of the 
hospital's patient days for such period which consist of 
patients who (for such days) were eligible for medical 
assistance under a State plan approved under title XIX, the 
Secretary may, to the extent and for the period the Secretary 
determines appropriate, include patient days of patients not so 
eligible but who are regarded as such because they receive 
benefits under a demonstration project approved under title XI.
  (vii) The formula used to determine the disproportionate 
share adjustment percentage for a cost reporting period for a 
hospital described in clause (iv)(I) is--
          (I) in the case of such a hospital with a 
        disproportionate patient percentage (as defined in 
        clause (vi)) greater than 20.2--
                  (a) for discharges occurring on or after 
                April 1, 1990, and on or before December 31, 
                1990, (P-20.2)(.65) + 5.62,
                  (b) for discharges occurring on or after 
                January 1, 1991, and on or before September 30, 
                1993, (P-20.2)(.7) + 5.62,
                  (c) for discharges occurring on or after 
                October 1, 1993, and on or before September 30, 
                1994, (P-20.2)(.8) + 5.88, and
                  (d) for discharges occurring on or after 
                October 1, 1994, (P-20.2)(.825) + 5.88; or
          (II) in the case of any other such hospital--
                  (a) for discharges occurring on or after 
                April 1, 1990, and on or before December 31, 
                1990, (P-15)(.6) + 2.5,
                  (b) for discharges occurring on or after 
                January 1, 1991, and on or before September 30, 
                1993, (P-15)(.6) + 2.5,
                  (c) for discharges occurring on or after 
                October 1, 1993, (P-15)(.65) + 2.5,
where ``P'' is the hospital's disproportionate patient 
percentage (as defined in clause (vi)).
  (viii) Subject to clause (xiv), the formula used to determine 
the disproportionate share adjustment percentage for a cost 
reporting period for a hospital described in clause (iv)(IV) or 
(iv)(V) is the percentage determined in accordance with the 
following formula:(P-30)(.6) + 4.0, where ``P'' is the 
hospital's disproportionate patient percentage (as defined in 
clause (vi)).
  (ix) In the case of discharges occurring--
          (I) during fiscal year 1998, the additional payment 
        amount otherwise determined under clause (ii) shall be 
        reduced by 1 percent;
          (II) during fiscal year 1999, such additional payment 
        amount shall be reduced by 2 percent;
          (III) during fiscal years 2000 and 2001, such 
        additional payment amount shall be reduced by 3 percent 
        and 2 percent, respectively;
          (IV) during fiscal year 2002, such additional payment 
        amount shall be reduced by 3 percent; and
          (V) during fiscal year 2003 and each subsequent 
        fiscal year, such additional payment amount shall be 
        reduced by 0 percent.
  (x) Subject to clause (xiv), for purposes of clause (iv)(VI) 
(relating to sole community hospitals), in the case of a 
hospital for a cost reporting period with a disproportionate 
patient percentage (as defined in clause (vi)) that--
          (I) is less than 19.3, the disproportionate share 
        adjustment percentage is determined in accordance with 
        the following formula: (P-15)(.65) + 2.5;
          (II) is equal to or exceeds 19.3, but is less than 
        30.0, such adjustment percentage is equal to 5.25 
        percent; or
          (III) is equal to or exceeds 30, such adjustment 
        percentage is equal to 10 percent,
where ``P'' is the hospital's disproportionate patient 
percentage (as defined in clause (vi)).
  (xi) Subject to clause (xiv), for purposes of clause (iv)(V) 
(relating to rural referral centers), in the case of a hospital 
for a cost reporting period with a disproportionate patient 
percentage (as defined in clause (vi)) that--
          (I) is less than 19.3, the disproportionate share 
        adjustment percentage is determined in accordance with 
        the following formula: (P-15)(.65) + 2.5;
          (II) is equal to or exceeds 19.3, but is less than 
        30.0, such adjustment percentage is equal to 5.25 
        percent; or
          (III) is equal to or exceeds 30, such adjustment 
        percentage is determined in accordance with the 
        following formula: (P-30)(.6) + 5.25,
where ``P'' is the hospital's disproportionate patient 
percentage (as defined in clause (vi)).
  (xii) Subject to clause (xiv), for purposes of clause 
(iv)(III) (relating to small rural hospitals generally), in the 
case of a hospital for a cost reporting period with a 
disproportionate patient percentage (as defined in clause (vi)) 
that--
          (I) is less than 19.3, the disproportionate share 
        adjustment percentage is determined in accordance with 
        the following formula: (P-15)(.65) + 2.5; or
          (II) is equal to or exceeds 19.3, such adjustment 
        percentage is equal to 5.25 percent,
where ``P'' is the hospital's disproportionate patient 
percentage (as defined in clause (vi)).
  (xiii) Subject to clause (xiv), for purposes of clause 
(iv)(II) (relating to urban hospitals with less than 100 beds), 
in the case of a hospital for a cost reporting period with a 
disproportionate patient percentage (as defined in clause (vi)) 
that--
          (I) is less than 19.3, the disproportionate share 
        adjustment percentage is determined in accordance with 
        the following formula: (P-15)(.65) + 2.5; or
          (II) is equal to or exceeds 19.3, such adjustment 
        percentage is equal to 5.25 percent,
where ``P'' is the hospital's disproportionate patient 
percentage (as defined in clause (vi)).
  (xiv)(I) In the case of discharges occurring on or after 
April 1, 2004, subject to subclause (II), there shall be 
substituted for the disproportionate share adjustment 
percentage otherwise determined under clause (iv) (other than 
subclause (I)) or under clause (viii), (x), (xi), (xii), or 
(xiii), the disproportionate share adjustment percentage 
determined under clause (vii) (relating to large, urban 
hospitals).
  (II) Under subclause (I), the disproportionate share 
adjustment percentage shall not exceed 12 percent for a 
hospital that is not classified as a rural referral center 
under subparagraph (C) or, in the case of discharges occurring 
on or after October 1, 2006, as a medicare-dependent, small 
rural hospital under subparagraph (G)(iv).
  (G)(i) For any cost reporting period beginning on or after 
April 1, 1990, and before October 1, 1994, or discharges 
occurring on or after October 1, 1997, and before October 1, 
2017, in the case of a subsection (d) hospital which is a 
medicare-dependent, small rural hospital, payment under 
paragraph (1)(A) shall be equal to the sum of the amount 
determined under clause (ii) and the amount determined under 
paragraph (1)(A)(iii).
  (ii) The amount determined under this clause is--
          (I) for discharges occurring during the 36-month 
        period beginning with the first day of the cost 
        reporting period that begins on or after April 1, 1990, 
        the amount by which the hospital's target amount for 
        the cost reporting period (as defined in subsection 
        (b)(3)(D)) exceeds the amount determined under 
        paragraph (1)(A)(iii); and
          (II) for discharges occurring during any subsequent 
        cost reporting period (or portion thereof) and before 
        October 1, 1994, or discharges occurring on or after 
        October 1, 1997, and before October 1, 2017, 50 percent 
        (or 75 percent in the case of discharges occurring on 
        or after October 1, 2006) of the amount by which the 
        hospital's target amount for the cost reporting period 
        or for discharges in the fiscal year (as defined in 
        subsection (b)(3)(D)) exceeds the amount determined 
        under paragraph (1)(A)(iii).
  (iii) In the case of a medicare dependent, small rural 
hospital that experiences, in a cost reporting period compared 
to the previous cost reporting period, a decrease of more than 
5 percent in its total number of inpatient cases due to 
circumstances beyond its control, the Secretary shall provide 
for such adjustment to the payment amounts under this 
subsection (other than under paragraph (9)) as may be necessary 
to fully compensate the hospital for the fixed costs it incurs 
in the period in providing inpatient hospital services, 
including the reasonable cost of maintaining necessary core 
staff and services.
  (iv) The term ``medicare-dependent, small rural hospital'' 
means, with respect to any cost reporting period to which 
clause (i) applies, any hospital--
          (I) located in a rural area,
          (II) that has not more than 100 beds,
          (III) that is not classified as a sole community 
        hospital under subparagraph (D), and
          (IV) for which not less than 60 percent of its 
        inpatient days or discharges during the cost reporting 
        period beginning in fiscal year 1987, or two of the 
        three most recently audited cost reporting periods for 
        which the Secretary has a settled cost report, were 
        attributable to inpatients entitled to benefits under 
        part A.
  (H) The Secretary may provide for such adjustments to the 
payment amounts under this subsection as the Secretary deems 
appropriate to take into account the unique circumstances of 
hospitals located in Alaska and Hawaii.
  (I)(i) The Secretary shall provide by regulation for such 
other exceptions and adjustments to such payment amounts under 
this subsection as the Secretary deems appropriate.
  (ii) In making adjustments under clause (i) for transfer 
cases (as defined by the Secretary) in a fiscal year, not 
taking in account the effect of subparagraph (J), the Secretary 
may make adjustments to each of the average standardized 
amounts determined under paragraph (3) to assure that the 
aggregate payments made under this subsection for such fiscal 
year are not greater or lesser than those that would have 
otherwise been made in such fiscal year.
  (J)(i) The Secretary shall treat the term ``transfer case'' 
(as defined in subparagraph (I)(ii)) as including the case of a 
qualified discharge (as defined in clause (ii)), which is 
classified within a diagnosis-related group described in clause 
(iii), and which occurs on or after October 1, 1998. In the 
case of a qualified discharge for which a substantial portion 
of the costs of care are incurred in the early days of the 
inpatient stay (as defined by the Secretary), in no case may 
the payment amount otherwise provided under this subsection 
exceed an amount equal to the sum of--
          (I) 50 percent of the amount of payment under this 
        subsection for transfer cases (as established under 
        subparagraph (I)(i)), and
          (II) 50 percent of the amount of payment which would 
        have been made under this subsection with respect to 
        the qualified discharge if no transfer were involved.
  (ii) For purposes of clause (i), subject to clause (iii), the 
term ``qualified discharge'' means a discharge classified with 
a diagnosis-related group (described in clause (iii)) of an 
individual from a subsection (d) hospital, if upon such 
discharge the individual--
          (I) is admitted as an inpatient to a hospital or 
        hospital unit that is not a subsection (d) hospital for 
        the provision of inpatient hospital services;
          (II) is admitted to a skilled nursing facility;
          (III) is provided home health services from a home 
        health agency, if such services relate to the condition 
        or diagnosis for which such individual received 
        inpatient hospital services from the subsection (d) 
        hospital, and if such services are provided within an 
        appropriate period (as determined by the Secretary); or
          (IV) for discharges occurring on or after October 1, 
        2000, the individual receives post discharge services 
        described in clause (iv)(I).
  (iii) Subject to clause (iv), a diagnosis-related group 
described in this clause is--
          (I) 1 of 10 diagnosis-related groups selected by the 
        Secretary based upon a high volume of discharges 
        classified within such groups and a disproportionate 
        use of post discharge services described in clause 
        (ii); and
          (II) a diagnosis-related group specified by the 
        Secretary under clause (iv)(II).
  (iv) The Secretary shall include in the proposed rule 
published under subsection (e)(5)(A) for fiscal year 2001, a 
description of the effect of this subparagraph. The Secretary 
may include in the proposed rule (and in the final rule 
published under paragraph (6)) for fiscal year 2001 or a 
subsequent fiscal year, a description of--
          (I) post-discharge services not described in 
        subclauses (I), (II), and (III) of clause (ii), the 
        receipt of which results in a qualified discharge; and
          (II) diagnosis-related groups described in clause 
        (iii)(I) in addition to the 10 selected under such 
        clause.
  (K)(i) Effective for discharges beginning on or after October 
1, 2001, the Secretary shall establish a mechanism to recognize 
the costs of new medical services and technologies under the 
payment system established under this subsection. Such 
mechanism shall be established after notice and opportunity for 
public comment (in the publications required by subsection 
(e)(5) for a fiscal year or otherwise). Such mechanism shall be 
modified to meet the requirements of clause (viii).
  (ii) The mechanism established pursuant to clause (i) shall--
          (I) apply to a new medical service or technology if, 
        based on the estimated costs incurred with respect to 
        discharges involving such service or technology, the 
        DRG prospective payment rate otherwise applicable to 
        such discharges under this subsection is inadequate 
        (applying a threshold specified by the Secretary that 
        is the lesser of 75 percent of the standardized amount 
        (increased to reflect the difference between cost and 
        charges) or 75 percent of one standard deviation for 
        the diagnosis-related group involved);
          (II) provide for the collection of data with respect 
        to the costs of a new medical service or technology 
        described in subclause (I) for a period of not less 
        than two years and not more than three years beginning 
        on the date on which an inpatient hospital code is 
        issued with respect to the service or technology;
          (III) provide for additional payment to be made under 
        this subsection with respect to discharges involving a 
        new medical service or technology described in 
        subclause (I) that occur during the period described in 
        subclause (II) in an amount that adequately reflects 
        the estimated average cost of such service or 
        technology; and
          (IV) provide that discharges involving such a service 
        or technology that occur after the close of the period 
        described in subclause (II) will be classified within a 
        new or existing diagnosis-related group with a 
        weighting factor under paragraph (4)(B) that is derived 
        from cost data collected with respect to discharges 
        occurring during such period.
  (iii) For purposes of clause (ii)(II), the term ``inpatient 
hospital code'' means any code that is used with respect to 
inpatient hospital services for which payment may be made under 
this subsection and includes an alphanumeric code issued under 
the International Classification of Diseases, 9th Revision, 
Clinical Modification (``ICD-9-CM'') and its subsequent 
revisions.
  (iv) For purposes of clause (ii)(III), the term ``additional 
payment'' means, with respect to a discharge for a new medical 
service or technology described in clause (ii)(I), an amount 
that exceeds the prospective payment rate otherwise applicable 
under this subsection to discharges involving such service or 
technology that would be made but for this subparagraph.
  (v) The requirement under clause (ii)(III) for an additional 
payment may be satisfied by means of a new-technology group 
(described in subparagraph (L)), an add-on payment, a payment 
adjustment, or any other similar mechanism for increasing the 
amount otherwise payable with respect to a discharge under this 
subsection. The Secretary may not establish a separate fee 
schedule for such additional payment for such services and 
technologies, by utilizing a methodology established under 
subsection (a) or (h) of section 1834 to determine the amount 
of such additional payment, or by other similar mechanisms or 
methodologies.
  (vi) For purposes of this subparagraph and subparagraph (L), 
a medical service or technology will be considered a ``new 
medical service or technology'' if the service or technology 
meets criteria established by the Secretary after notice and an 
opportunity for public comment.
  (vii) Under the mechanism under this subparagraph, the 
Secretary shall provide for the addition of new diagnosis and 
procedure codes in April 1 of each year, but the addition of 
such codes shall not require the Secretary to adjust the 
payment (or diagnosis-related group classification) under this 
subsection until the fiscal year that begins after such date.
  (viii) The mechanism established pursuant to clause (i) shall 
be adjusted to provide, before publication of a proposed rule, 
for public input regarding whether a new service or technology 
represents an advance in medical technology that substantially 
improves the diagnosis or treatment of individuals entitled to 
benefits under part A as follows:
          (I) The Secretary shall make public and periodically 
        update a list of all the services and technologies for 
        which an application for additional payment under this 
        subparagraph is pending.
          (II) The Secretary shall accept comments, 
        recommendations, and data from the public regarding 
        whether the service or technology represents a 
        substantial improvement.
          (III) The Secretary shall provide for a meeting at 
        which organizations representing hospitals, physicians, 
        such individuals, manufacturers, and any other 
        interested party may present comments, recommendations, 
        and data to the clinical staff of the Centers for 
        Medicare & Medicaid Services before publication of a 
        notice of proposed rulemaking regarding whether service 
        or technology represents a substantial improvement.
  (ix) Before establishing any add-on payment under this 
subparagraph with respect to a new technology, the Secretary 
shall seek to identify one or more diagnosis-related groups 
associated with such technology, based on similar clinical or 
anatomical characteristics and the cost of the technology. 
Within such groups the Secretary shall assign an eligible new 
technology into a diagnosis-related group where the average 
costs of care most closely approximate the costs of care of 
using the new technology. No add-on payment under this 
subparagraph shall be made with respect to such new technology 
and this clause shall not affect the application of paragraph 
(4)(C)(iii).
  (L)(i) In establishing the mechanism under subparagraph (K), 
the Secretary may establish new-technology groups into which a 
new medical service or technology will be classified if, based 
on the estimated average costs incurred with respect to 
discharges involving such service or technology, the DRG 
prospective payment rate otherwise applicable to such 
discharges under this subsection is inadequate.
  (ii) Such groups--
          (I) shall not be based on the costs associated with a 
        specific new medical service or technology; but
          (II) shall, in combination with the applicable 
        standardized amounts and the weighting factors assigned 
        to such groups under paragraph (4)(B), reflect such 
        cost cohorts as the Secretary determines are 
        appropriate for all new medical services and 
        technologies that are likely to be provided as 
        inpatient hospital services in a fiscal year.
  (iii) The methodology for classifying specific hospital 
discharges within a diagnosis-related group under paragraph 
(4)(A) or a new-technology group shall provide that a specific 
hospital discharge may not be classified within both a 
diagnosis-related group and a new-technology group.
  (6) The Secretary shall provide for publication in the 
Federal Register, on or before the August 1 before each fiscal 
year (beginning with fiscal year 1984), of a description of the 
methodology and data used in computing the adjusted DRG 
prospective payment rates under this subsection, including any 
adjustments required under subsection (e)(1)(B).
  (7) There shall be no administrative or judicial review under 
section 1878 or otherwise of--
          (A) the determination of the requirement, or the 
        proportional amount, of any adjustment effected 
        pursuant to subsection (e)(1) or the determination of 
        the applicable percentage increase under paragraph 
        (12)(A)(ii),
          (B) the establishment of diagnosis-related groups, of 
        the methodology for the classification of discharges 
        within such groups, and of the appropriate weighting 
        factors thereof under paragraph (4), including the 
        selection and revision of codes under paragraph (4)(D), 
        and
          (C) the determination of whether services provided 
        prior to a patient's inpatient admission are related to 
        the admission (as described in subsection (a)(4)).
  (8)(A) In the case of any hospital which is located in an 
area which is, at any time after April 20, 1983, reclassified 
from an urban to a rural area, payments to such hospital for 
the first two cost reporting periods for which such 
reclassification is effective shall be made as follows:
          (i) For the first such cost reporting period, payment 
        shall be equal to the amount payable to such hospital 
        for such reporting period on the basis of the rural 
        classification, plus an amount equal to two-thirds of 
        the amount (if any) by which--
                  (I) the amount which would have been payable 
                to such hospital for such reporting period on 
                the basis of an urban classification, exceeds
                  (II) the amount payable to such hospital for 
                such reporting period on the basis of the rural 
                classification.
          (ii) For the second such cost reporting period, 
        payment shall be equal to the amount payable to such 
        hospital for such reporting period on the basis of the 
        rural classification, plus an amount equal to one-third 
        of the amount (if any) by which--
                  (I) the amount which would have been payable 
                to such hospital for such reporting period on 
                the basis of an urban classification, exceeds
                  (II) the amount payable to such hospital for 
                such reporting period on the basis of the rural 
                classification.
  (B)(i) For purposes of this subsection, the Secretary shall 
treat a hospital located in a rural county adjacent to one or 
more urban areas as being located in the urban metropolitan 
statistical area to which the greatest number of workers in the 
county commute, if the rural county would otherwise be 
considered part of an urban area, under the standards for 
designating Metropolitan Statistical Areas (and for designating 
New England County Metropolitan Areas) described in clause 
(ii), if the commuting rates used in determining outlying 
counties (or, for New England, similar recognized areas) were 
determined on the basis of the aggregate number of resident 
workers who commute to (and, if applicable under the standards, 
from) the central county or counties of all contiguous 
Metropolitan Statistical Areas (or New England County 
Metropolitan Areas).
  (ii) The standards described in this clause for cost 
reporting periods beginning in a fiscal year--
          (I) before fiscal year 2003, are the standards 
        published in the Federal Register on January 3, 1980, 
        or, at the election of the hospital with respect to 
        fiscal years 2001 and 2002, standards so published on 
        March 30, 1990; and
          (II) after fiscal year 2002, are the standards 
        published in the Federal Register by the Director of 
        the Office of Management and Budget based on the most 
        recent available decennial population data.
Subparagraphs (C) and (D) shall not apply with respect to the 
application of subclause (I).
  (C)(i) If the application of subparagraph (B) or a decision 
of the Medicare Geographic Classification Review Board or the 
Secretary under paragraph (10), by treating hospitals located 
in a rural county or counties as being located in an urban 
area, or by treating hospitals located in one urban area as 
being located in another urban area--
          (I) reduces the wage index for that urban area (as 
        applied under this subsection) by 1 percentage point or 
        less, the Secretary, in calculating such wage index 
        under this subsection, shall exclude those hospitals so 
        treated, or
          (II) reduces the wage index for that urban area by 
        more than 1 percentage point (as applied under this 
        subsection), the Secretary shall calculate and apply 
        such wage index under this subsection separately to 
        hospitals located in such urban area (excluding all the 
        hospitals so treated) and to the hospitals so treated 
        (as if such hospitals were located in such urban area).
  (ii) If the application of subparagraph (B) or a decision of 
the Medicare Geographic Classification Review Board or the 
Secretary under paragraph (10), by treating hospitals located 
in a rural county or counties as not being located in the rural 
area in a State, reduces the wage index for that rural area (as 
applied under this subsection), the Secretary shall calculate 
and apply such wage index under this subsection as if the 
hospitals so treated had not been excluded from calculation of 
the wage index for that rural area.
  (iii) The application of subparagraph (B) or a decision of 
the Medicare Geographic Classification Review Board or the 
Secretary under paragraph (10) may not result in the reduction 
of any county's wage index to a level below the wage index for 
rural areas in the State in which the county is located.
  (iv) The application of subparagraph (B) or a decision of the 
Medicare Geographic Classification Review Board or of the 
Secretary under paragraph (10) may not result in a reduction in 
an urban area's wage index if--
          (I) the urban area has a wage index below the wage 
        index for rural areas in the State in which it is 
        located; or
          (II) the urban area is located in a State that is 
        composed of a single urban area.
  (v) This subparagraph shall apply with respect to discharges 
occurring in a fiscal year only if the Secretary uses a method 
for making adjustments to the DRG prospective payment rate for 
area differences in hospital wage levels under paragraph (3)(E) 
for the fiscal year that is based on the use of Metropolitan 
Statistical Area classifications.
  (D) The Secretary shall make a proportional adjustment in the 
standardized amounts determined under paragraph (3) to assure 
that the provisions of subparagraphs (B) and (C) or a decision 
of the Medicare Geographic Classification Review Board or the 
Secretary under paragraph (10) do not result in aggregate 
payments under this section that are greater or less than those 
that would otherwise be made.
  (E)(i) For purposes of this subsection, not later than 60 
days after the receipt of an application (in a form and manner 
determined by the Secretary) from a subsection (d) hospital 
described in clause (ii), the Secretary shall treat the 
hospital as being located in the rural area (as defined in 
paragraph (2)(D)) of the State in which the hospital is 
located.
  (ii) For purposes of clause (i), a subsection (d) hospital 
described in this clause is a subsection (d) hospital that is 
located in an urban area (as defined in paragraph (2)(D)) and 
satisfies any of the following criteria:
          (I) The hospital is located in a rural census tract 
        of a metropolitan statistical area (as determined under 
        the most recent modification of the Goldsmith 
        Modification, originally published in the Federal 
        Register on February 27, 1992 (57 Fed. Reg. 6725)).
          (II) The hospital is located in an area designated by 
        any law or regulation of such State as a rural area (or 
        is designated by such State as a rural hospital).
          (III) The hospital would qualify as a rural, 
        regional, or national referral center under paragraph 
        (5)(C) or as a sole community hospital under paragraph 
        (5)(D) if the hospital were located in a rural area.
          (IV) The hospital meets such other criteria as the 
        Secretary may specify.
  (9)(A) Notwithstanding section 1814(b) but subject to the 
provisions of section 1813, the amount of the payment with 
respect to the operating costs of inpatient hospital services 
of a subsection (d) Puerto Rico hospital for inpatient hospital 
discharges is equal to the sum of--
          (i) the applicable Puerto Rico percentage (specified 
        in subparagraph (E)) of the Puerto Rico adjusted DRG 
        prospective payment rate (determined under subparagraph 
        (B) or (C)) for such discharges,
          (ii) the applicable Federal percentage (specified in 
        subparagraph (E)) of--
                  (I) for discharges beginning in a fiscal year 
                beginning on or after October 1, 1997, and 
                before October 1, 2003, the discharge-weighted 
                average of--
                          (aa) the national adjusted DRG 
                        prospective payment rate (determined 
                        under paragraph (3)(D)) for hospitals 
                        located in a large urban area,
                          (bb) such rate for hospitals located 
                        in other urban areas, and
                          (cc) such rate for hospitals located 
                        in a rural area,
                for such discharges, adjusted in the manner 
                provided in paragraph (3)(E) for different area 
                wage levels; and
                  (II) for discharges in a fiscal year 
                beginning on or after October 1, 2003, the 
                national DRG prospective payment rate 
                determined under paragraph (3)(D)(iii) for 
                hospitals located in any area for such 
                discharges, adjusted in the manner provided in 
                paragraph (3)(E) for different area wage 
                levels.
As used in this section, the term ``subsection (d) Puerto Rico 
hospital'' means a hospital that is located in Puerto Rico and 
that would be a subsection (d) hospital (as defined in 
paragraph (1)(B)) if it were located in one of the 50 States.
  (B) The Secretary shall determine a Puerto Rico adjusted DRG 
prospective payment rate, for each inpatient hospital discharge 
in fiscal year 1988 involving inpatient hospital services of a 
subsection (d) Puerto Rico hospital for which payment may be 
made under part A of this title. Such rate shall be determined 
for such hospitals located in urban or rural areas within 
Puerto Rico, as follows:
          (i) The Secretary shall determine the target amount 
        (as defined in subsection (b)(3)(A)) for the hospital 
        for the cost reporting period beginning in fiscal year 
        1987 and increase such amount by prorating the 
        applicable percentage increase (as defined in 
        subsection (b)(3)(B)) to update the amount to the 
        midpoint in fiscal year 1988.
          (ii) The Secretary shall standardize the amount 
        determined under clause (i) for each hospital by--
                  (I) excluding an estimate of indirect medical 
                education costs,
                  (II) adjusting for variations among hospitals 
                by area in the average hospital wage level,
                  (III) adjusting for variations in case mix 
                among hospitals, and
                  (IV) excluding an estimate of the additional 
                payments to certain subsection (d) Puerto Rico 
                hospitals to be made under subparagraph 
                (D)(iii) (relating to disproportionate share 
                payments).
          (iii) The Secretary shall compute a discharge 
        weighted average of the standardized amounts determined 
        under clause (ii) for all hospitals located in an urban 
        area and for all hospitals located in a rural area (as 
        such terms are defined in paragraph (2)(D)).
          (iv) The Secretary shall reduce the average 
        standardized amount by a proportion equal to the 
        proportion (estimated by the Secretary) of the amount 
        of payments under this paragraph which are additional 
        payments described in subparagraph (D)(i) (relating to 
        outlier payments).
          (v) For each discharge classified within a diagnosis-
        related group for hospitals located in an urban or 
        rural area, respectively, the Secretary shall establish 
        a Puerto Rico DRG prospective payment rate equal to the 
        product of--
                  (I) the average standardized amount (computed 
                under clause (iii) and reduced under clause 
                (iv)) for hospitals located in an urban or 
                rural area, respectively, and
                  (II) the weighting factor (determined under 
                paragraph (4)(B)) for that diagnosis-related 
                group.
          (vi) The Secretary shall adjust the proportion (as 
        estimated by the Secretary from time to time) of 
        hospitals' costs which are attributable to wages and 
        wage-related costs, of the Puerto Rico DRG prospective 
        payment rate computed under clause (v) for area 
        differences in hospital wage levels by a factor 
        (established by the Secretary) reflecting the relative 
        hospital wage level in the geographic area of the 
        hospital compared to the Puerto Rican average hospital 
        wage level.
  (C) The Secretary shall determine a Puerto Rico adjusted DRG 
prospective payment rate, for each inpatient hospital discharge 
after fiscal year 1988 involving inpatient hospital services of 
a subsection (d) Puerto Rico hospital for which payment may be 
made under part A of this title. Such rate shall be determined 
for hospitals located in urban or rural areas within Puerto 
Rico as follows:
          (i)(I) For discharges in a fiscal year after fiscal 
        year 1988 and before fiscal year 2004, the Secretary 
        shall compute an average standardized amount for 
        hospitals located in an urban area and for hospitals 
        located in a rural area equal to the respective average 
        standardized amount computed for the previous fiscal 
        year under subparagraph (B)(iii) or under this clause, 
        increased for fiscal year 1989 by the applicable 
        percentage increase under subsection (b)(3)(B), and 
        adjusted for subsequent fiscal years in accordance with 
        the final determination of the Secretary under 
        subsection (e)(4), and adjusted to reflect the most 
        recent case-mix data available.
          (II) For discharges occurring in a fiscal year 
        (beginning with fiscal year 2004), the Secretary shall 
        compute an average standardized amount for hospitals 
        located in any area of Puerto Rico that is equal to the 
        average standardized amount computed under subclause 
        (I) for fiscal year 2003 for hospitals in a large urban 
        area (or, beginning with fiscal year 2005, for all 
        hospitals in the previous fiscal year) increased by the 
        applicable percentage increase under subsection 
        (b)(3)(B) for the fiscal year involved.
          (ii) The Secretary shall reduce each of the average 
        standardized amounts (or for fiscal year 2004 and 
        thereafter, the average standardized amount) by a 
        proportion equal to the proportion (estimated by the 
        Secretary) of the amount of payments under this 
        paragraph which are additional payments described in 
        subparagraph (D)(i) (relating to outlier payments).
          (iii) For each discharge classified within a 
        diagnosis-related group for hospitals located in an 
        urban or rural area, respectively, the Secretary shall 
        establish a Puerto Rico DRG prospective payment rate 
        equal to the product of--
                  (I) the average standardized amount (computed 
                under clause (i) and reduced under clause 
                (ii)), and
                  (II) the weighting factor (determined under 
                paragraph (4)(B)) for that diagnosis-related 
                group.
          (iv)(I) The Secretary shall adjust the proportion (as 
        estimated by the Secretary from time to time) of 
        hospitals' costs which are attributable to wages and 
        wage-related costs, of the Puerto Rico DRG prospective 
        payment rate computed under clause (iii) for area 
        differences in hospital wage levels by a factor 
        (established by the Secretary) reflecting the relative 
        hospital wage level in the geographic area of the 
        hospital compared to the Puerto Rico average hospital 
        wage level. The second and third sentences of paragraph 
        (3)(E)(i) shall apply to subsection (d) Puerto Rico 
        hospitals under this clause in the same manner as they 
        apply to subsection (d) hospitals under such paragraph 
        and, for purposes of this clause, any reference in such 
        paragraph to a subsection (d) hospital is deemed a 
        reference to a subsection (d) Puerto Rico hospital.
          (II) For discharges occurring on or after October 1, 
        2004, the Secretary shall substitute ``62 percent'' for 
        the proportion described in the first sentence of 
        clause (i), unless the application of this subclause 
        would result in lower payments to a hospital than would 
        otherwise be made.
  (D) The following provisions of paragraph (5) shall apply to 
subsection (d) Puerto Rico hospitals receiving payment under 
this paragraph in the same manner and to the extent as they 
apply to subsection (d) hospitals receiving payment under this 
subsection:
          (i) Subparagraph (A) (relating to outlier payments).
          (ii) Subparagraph (B) (relating to payments for 
        indirect medical education costs), except that for this 
        purpose the sum of the amount determined under 
        subparagraph (A) of this paragraph and the amount paid 
        to the hospital under clause (i) of this subparagraph 
        shall be substituted for the sum referred to in 
        paragraph (5)(B)(i)(I).
          (iii) Subparagraph (F) (relating to disproportionate 
        share payments), except that for this purpose the sum 
        described in clause (ii) of this subparagraph shall be 
        substituted for the sum referred to in paragraph 
        (5)(F)(ii)(I).
          (iv) Subparagraph (H) (relating to exceptions and 
        adjustments).
  (E) For purposes of subparagraph (A), for discharges 
occurring--
          (i) on or after October 1, 1987, and before October 
        1, 1997, the applicable Puerto Rico percentage is 75 
        percent and the applicable Federal percentage is 25 
        percent;
          (ii) on or after October 1, 1997, and before April 1, 
        2004, the applicable Puerto Rico percentage is 50 
        percent and the applicable Federal percentage is 50 
        percent;
          (iii) on or after April 1, 2004, and before October 
        1, 2004, the applicable Puerto Rico percentage is 37.5 
        percent and the applicable Federal percentage is 62.5 
        percent;
          (iv) on or after October 1, 2004, and before January 
        1, 2016, the applicable Puerto Rico percentage is 25 
        percent and the applicable Federal percentage is 75 
        percent; and
          (v) on or after January 1, 2016, the applicable 
        Puerto Rico percentage is 0 percent and the applicable 
        Federal percentage is 100 percent.
  (10)(A) There is hereby established the Medicare Geographic 
Classification Review Board (hereinafter in this paragraph 
referred to as the ``Board'').
  (B)(i) The Board shall be composed of 5 members appointed by 
the Secretary without regard to the provisions of title 5, 
United States Code, governing appointments in the competitive 
service. Two of such members shall be representative of 
subsection (d) hospitals located in a rural area under 
paragraph (2)(D). At least 1 member shall be knowledgeable in 
the field of analyzing costs with respect to the provision of 
inpatient hospital services.
  (ii) The Secretary shall make initial appointments to the 
Board as provided in this paragraph within 180 days after the 
date of the enactment of this paragraph.
  (C)(i) The Board shall consider the application of any 
subsection (d) hospital requesting that the Secretary change 
the hospital's geographic classification for purposes of 
determining for a fiscal year--
          (I) the hospital's average standardized amount under 
        paragraph (2)(D), or
          (II) the factor used to adjust the DRG prospective 
        payment rate for area differences in hospital wage 
        levels that applies to such hospital under paragraph 
        (3)(E).
  (ii) A hospital requesting a change in geographic 
classification under clause (i) for a fiscal year shall submit 
its application to the Board not later than the first day of 
the 13-month period ending on September 30 of the preceding 
fiscal year.
  (iii)(I) The Board shall render a decision on an application 
submitted under clause (i) not later than 180 days after the 
deadline referred to in clause (ii).
  (II) Appeal of decisions of the Board shall be subject to the 
provisions of section 557b of title 5, United States Code. The 
Secretary shall issue a decision on such an appeal not later 
than 90 days after the date on which the appeal is filed. The 
decision of the Secretary shall be final and shall not be 
subject to judicial review.
  (D)(i) The Secretary shall publish guidelines to be utilized 
by the Board in rendering decisions on applications submitted 
under this paragraph, and shall include in such guidelines the 
following:
          (I) Guidelines for comparing wages, taking into 
        account (to the extent the Secretary determines 
        appropriate) occupational mix, in the area in which the 
        hospital is classified and the area in which the 
        hospital is applying to be classified.
          (II) Guidelines for determining whether the county in 
        which the hospital is located should be treated as 
        being a part of a particular Metropolitan Statistical 
        Area.
          (III) Guidelines for considering information provided 
        by an applicant with respect to the effects of the 
        hospital's geographic classification on access to 
        inpatient hospital services by medicare beneficiaries.
          (IV) Guidelines for considering the appropriateness 
        of the criteria used to define New England County 
        Metropolitan Areas.
  (ii) Notwithstanding clause (i), if the Secretary uses a 
method for making adjustments to the DRG prospective payment 
rate for area differences in hospital wage levels under 
paragraph (3)(E) that is not based on the use of Metropolitan 
Statistical Area classifications, the Secretary may revise the 
guidelines published under clause (i) to the extent such 
guidelines are used to determine the appropriateness of the 
geographic area in which the hospital is determined to be 
located for purposes of making such adjustments.
  (iii) Under the guidelines published by the Secretary under 
clause (i), in the case of a hospital which has ever been 
classified by the Secretary as a rural referral center under 
paragraph (5)(C), the Board may not reject the application of 
the hospital under this paragraph on the basis of any 
comparison between the average hourly wage of the hospital and 
the average hourly wage of hospitals in the area in which it is 
located.
  (iv) The Secretary shall publish the guidelines described in 
clause (i) by July 1, 1990.
  (v) Any decision of the Board to reclassify a subsection (d) 
hospital for purposes of the adjustment factor described in 
subparagraph (C)(i)(II) for fiscal year 2001 or any fiscal year 
thereafter shall be effective for a period of 3 fiscal years, 
except that the Secretary shall establish procedures under 
which a subsection (d) hospital may elect to terminate such 
reclassification before the end of such period.
  (vi) Such guidelines shall provide that, in making decisions 
on applications for reclassification for the purposes described 
in clause (v) for fiscal year 2003 and any succeeding fiscal 
year, the Board shall base any comparison of the average hourly 
wage for the hospital with the average hourly wage for 
hospitals in an area on--
          (I) an average of the average hourly wage amount for 
        the hospital from the most recently published hospital 
        wage survey data of the Secretary (as of the date on 
        which the hospital applies for reclassification) and 
        such amount from each of the two immediately preceding 
        surveys; and
          (II) an average of the average hourly wage amount for 
        hospitals in such area from the most recently published 
        hospital wage survey data of the Secretary (as of the 
        date on which the hospital applies for 
        reclassification) and such amount from each of the two 
        immediately preceding surveys.
  (E)(i) The Board shall have full power and authority to make 
rules and establish procedures, not inconsistent with the 
provisions of this title or regulations of the Secretary, which 
are necessary or appropriate to carry out the provisions of 
this paragraph. In the course of any hearing the Board may 
administer oaths and affirmations. The provisions of 
subsections (d) and (e) of section 205 with respect to subpenas 
shall apply to the Board to the same extent as such provisions 
apply to the Secretary with respect to title II.
  (ii) The Board is authorized to engage such technical 
assistance and to receive such information as may be required 
to carry out its functions, and the Secretary shall, in 
addition, make available to the Board such secretarial, 
clerical, and other assistance as the Board may require to 
carry out its functions.
  (F)(i) Each member of the Board who is not an officer or 
employee of the Federal Government shall be compensated at a 
rate equal to the daily equivalent of the annual rate of basic 
pay prescribed for grade GS-18 of the General Schedule under 
section 5332 of title 5, United States Code, for each day 
(including travel time) during which such member is engaged in 
the performance of the duties of the Board. Each member of the 
Board who is an officer or employee of the United States shall 
serve without compensation in addition to that received for 
service as an officer or employee of the United States.
  (ii) Members of the Board shall be allowed travel expenses, 
including per diem in lieu of subsistence, at rates authorized 
for employees of agencies under subchapter I of chapter 57 of 
title 5, United States Code, while away from their homes or 
regular places of business in the performance of services for 
the Board.
          (11) Additional payments for managed care 
        enrollees.--
                  (A) In general.--For portions of cost 
                reporting periods occurring on or after January 
                1, 1998, the Secretary shall provide for an 
                additional payment amount for each applicable 
                discharge of any subsection (d) hospital that 
                has an approved medical residency training 
                program.
                  (B) Applicable discharge.--For purposes of 
                this paragraph, the term ``applicable 
                discharge'' means the discharge of any 
                individual who is enrolled under a risk-sharing 
                contract with an eligible organization under 
                section 1876 and who is entitled to benefits 
                under part A or any individual who is enrolled 
                with a Medicare+Choice organization under part 
                C.
                  (C) Determination of amount.--The amount of 
                the payment under this paragraph with respect 
                to any applicable discharge shall be equal to 
                the applicable percentage (as defined in 
                subsection (h)(3)(D)(ii)) of the estimated 
                average per discharge amount that would 
                otherwise have been paid under paragraph (5)(B) 
                if the individuals had not been enrolled as 
                described in subparagraph (B).
                  (D) Special rule for hospitals under 
                reimbursement system.--The Secretary shall 
                establish rules for the application of this 
                paragraph to a hospital reimbursed under a 
                reimbursement system authorized under section 
                1814(b)(3) in the same manner as it would apply 
                to the hospital if it were not reimbursed under 
                such section.
          (12) Payment adjustment for low-volume hospitals.--
                  (A) In general.--In addition to any payments 
                calculated under this section for a subsection 
                (d) hospital, for discharges occurring during a 
                fiscal year (beginning with fiscal year 2005), 
                the Secretary shall provide for an additional 
                payment amount to each low-volume hospital (as 
                defined in subparagraph (C)(i)) for discharges 
                occurring during that fiscal year that is equal 
                to the applicable percentage increase 
                (determined under subparagraph (B) or (D) for 
                the hospital involved) in the amount paid to 
                such hospital under this section for such 
                discharges (determined without regard to this 
                paragraph).
                  (B) Applicable percentage increase.--For 
                discharges occurring in fiscal years 2005 
                through 2010 and for discharges occurring in 
                fiscal year 2018 and subsequent fiscal years, 
                the Secretary shall determine an applicable 
                percentage increase for purposes of 
                subparagraph (A) as follows:
                          (i) The Secretary shall determine the 
                        empirical relationship for subsection 
                        (d) hospitals between the standardized 
                        cost-per-case for such hospitals and 
                        the total number of discharges of such 
                        hospitals and the amount of the 
                        additional incremental costs (if any) 
                        that are associated with such number of 
                        discharges.
                          (ii) The applicable percentage 
                        increase shall be determined based upon 
                        such relationship in a manner that 
                        reflects, based upon the number of such 
                        discharges for a subsection (d) 
                        hospital, such additional incremental 
                        costs.
                          (iii) In no case shall the applicable 
                        percentage increase exceed 25 percent.
                  (C) Definitions.--
                          (i) Low-volume hospital.--For 
                        purposes of this paragraph, the term 
                        ``low-volume hospital'' means, for a 
                        fiscal year, a subsection (d) hospital 
                        (as defined in paragraph (1)(B)) that 
                        the Secretary determines is located 
                        more than 25 road miles (or, with 
                        respect to fiscal years 2011 through 
                        2017, 15 road miles) from another 
                        subsection (d) hospital and has less 
                        than 800 discharges (or, with respect 
                        to fiscal years 2011 through 2017, 
                        1,600 discharges of individuals 
                        entitled to, or enrolled for, benefits 
                        under part A) during the fiscal year or 
                        portion of fiscal year.
                          (ii) Discharge.--For purposes of 
                        subparagraph (B) and clause (i), the 
                        term ``discharge'' means an inpatient 
                        acute care discharge of an individual 
                        regardless of whether the individual is 
                        entitled to benefits under part A.
                  (D) Temporary applicable percentage 
                increase.--For discharges occurring in fiscal 
                years 2011 through 2017, the Secretary shall 
                determine an applicable percentage increase for 
                purposes of subparagraph (A) using a continuous 
                linear sliding scale ranging from 25 percent 
                for low-volume hospitals with 200 or fewer 
                discharges of individuals entitled to, or 
                enrolled for, benefits under part A in the 
                fiscal year or the portion of fiscal year to 0 
                percent for low-volume hospitals with greater 
                than 1,600 discharges of such individuals in 
                the fiscal year.
  (13)(A) In order to recognize commuting patterns among 
geographic areas, the Secretary shall establish a process 
through application or otherwise for an increase of the wage 
index applied under paragraph (3)(E) for subsection (d) 
hospitals located in a qualifying county described in 
subparagraph (B) in the amount computed under subparagraph (D) 
based on out-migration of hospital employees who reside in that 
county to any higher wage index area.
  (B) The Secretary shall establish criteria for a qualifying 
county under this subparagraph based on the out-migration 
referred to in subparagraph (A) and differences in the area 
wage indices. Under such criteria the Secretary shall, 
utilizing such data as the Secretary determines to be 
appropriate, establish--
          (i) a threshold percentage, established by the 
        Secretary, of the weighted average of the area wage 
        index or indices for the higher wage index areas 
        involved;
          (ii) a threshold (of not less than 10 percent) for 
        minimum out-migration to a higher wage index area or 
        areas; and
          (iii) a requirement that the average hourly wage of 
        the hospitals in the qualifying county equals or 
        exceeds the average hourly wage of all the hospitals in 
        the area in which the qualifying county is located.
  (C) For purposes of this paragraph, the term ``higher wage 
index area'' means, with respect to a county, an area with a 
wage index that exceeds that of the county.
  (D) The increase in the wage index under subparagraph (A) for 
a qualifying county shall be equal to the percentage of the 
hospital employees residing in the qualifying county who are 
employed in any higher wage index area multiplied by the sum of 
the products, for each higher wage index area of--
          (i) the difference between--
                  (I) the wage index for such higher wage index 
                area, and
                  (II) the wage index of the qualifying county; 
                and
          (ii) the number of hospital employees residing in the 
        qualifying county who are employed in such higher wage 
        index area divided by the total number of hospital 
        employees residing in the qualifying county who are 
        employed in any higher wage index area.
  (E) The process under this paragraph may be based upon the 
process used by the Medicare Geographic Classification Review 
Board under paragraph (10). As the Secretary determines to be 
appropriate to carry out such process, the Secretary may 
require hospitals (including subsection (d) hospitals and other 
hospitals) and critical access hospitals, as required under 
section 1866(a)(1)(T), to submit data regarding the location of 
residence, or the Secretary may use data from other sources.
  (F) A wage index increase under this paragraph shall be 
effective for a period of 3 fiscal years, except that the 
Secretary shall establish procedures under which a subsection 
(d) hospital may elect to waive the application of such wage 
index increase.
  (G) A hospital in a county that has a wage index increase 
under this paragraph for a period and that has not waived the 
application of such an increase under subparagraph (F) is not 
eligible for reclassification under paragraph (8) or (10) 
during that period.
  (H) Any increase in a wage index under this paragraph for a 
county shall not be taken into account for purposes of--
          (i) computing the wage index for portions of the wage 
        index area (not including the county) in which the 
        county is located; or
          (ii) applying any budget neutrality adjustment with 
        respect to such index under paragraph (8)(D).
  (I) The thresholds described in subparagraph (B), data on 
hospital employees used under this paragraph, and any 
determination of the Secretary under the process described in 
subparagraph (E) shall be final and shall not be subject to 
judicial review.
  (e)(1)(A) For cost reporting periods of hospitals beginning 
in fiscal year 1984 or fiscal year 1985, the Secretary shall 
provide for such proportional adjustment in the applicable 
percentage increase (otherwise applicable to the periods under 
subsection (b)(3)(B)) as may be necessary to assure that--
          (i) the aggregate payment amounts otherwise provided 
        under subsection (d)(1)(A)(i)(I) for that fiscal year 
        for operating costs of inpatient hospital services of 
        hospitals (excluding payments made under section 
        1866(a)(1)(F)),
are not greater or less than--
          (ii) the target percentage (as defined in subsection 
        (d)(1)(C)) of the payment amounts which would have been 
        payable for such services for those same hospitals for 
        that fiscal year under this section under the law as in 
        effect before the date of the enactment of the Social 
        Security Amendments of 1983 (excluding payments made 
        under section 1866(a)(1)(F));
except that the adjustment made under this subparagraph shall 
apply only to subsection (d) hospitals and shall not apply for 
purposes of making computations under subsection (d)(2)(B)(ii) 
or subsection (d)(3)(A).
  (B) For discharges occurring in fiscal year 1984 or fiscal 
year 1985, the Secretary shall provide under subsections 
(d)(2)(F) and (d)(3)(C) for such equal proportional adjustment 
in each of the average standardized amounts otherwise computed 
for that fiscal year as may be necessary to assure that--
          (i) the aggregate payment amounts otherwise provided 
        under subsection (d)(1)(A)(i)(II) and (d)(5) for that 
        fiscal year for operating costs of inpatient hospital 
        services of hospitals (excluding payments made under 
        section 1866(a)(1)(F)),
are not greater or less than--
          (ii) the DRG percentage (as defined in subsection 
        (d)(1)(C)) of the payment amounts which would have been 
        payable for such services for those same hospitals for 
        that fiscal year under this section under the law as in 
        effect before the date of the enactment of the Social 
        Security Amendments of 1983 (excluding payments made 
        under section 1866(a)(1)(F)).
  (C) For discharges occurring in fiscal year 1988, the 
Secretary shall provide for such equal proportional adjustment 
in each of the average standardized amounts otherwise computed 
under subsection (d)(3) for that fiscal year as may be 
necessary to assure that--
          (i) the aggregate payment amounts otherwise provided 
        under subsections (d)(1)(A)(iii), (d)(5), and (d)(9) 
        for that fiscal year for operating costs of inpatient 
        hospital services of subsection (d) hospitals and 
        subsection (d) Puerto Rico hospitals,
are not greater or less than--
          (ii) the payment amounts that would have been payable 
        for such services for those same hospitals for that 
        fiscal year but for the enactment of the amendments 
        made by section 9304 of the Omnibus Budget 
        Reconciliation Act of 1986.
  (4)(A) Taking into consideration the recommendations of the 
Commission, the Secretary shall recommend for each fiscal year 
(beginning with fiscal year 1988) an appropriate change factor 
for inpatient hospital services for discharges in that fiscal 
year which will take into account amounts necessary for the 
efficient and effective delivery of medically appropriate and 
necessary care of high quality. The appropriate change factor 
may be different for all large urban subsection (d) hospitals, 
other urban subsection (d) hospitals, urban subsection (d) 
Puerto Rico hospitals, rural subsection (d) hospitals, and 
rural subsection (d) Puerto Rico hospitals, and all other 
hospitals and units not paid under subsection (d), and may vary 
among such other hospitals and units.
  (B) In addition to the recommendation made under subparagraph 
(A), the Secretary shall, taking into consideration the 
recommendations of the Commission under paragraph (2)(B), 
recommend for each fiscal year (beginning with fiscal year 
1992) other appropriate changes in each existing reimbursement 
policy under this title under which payments to an institution 
are based upon prospectively determined rates.
  (5) The Secretary shall cause to have published in the 
Federal Register, not later than--
          (A) the April 1 before each fiscal year (beginning 
        with fiscal year 1986), the Secretary's proposed 
        recommendations under paragraph (4) for that fiscal 
        year for public comment, and
          (B) the August 1 before such fiscal year after such 
        consideration of public comment on the proposal as is 
        feasible in the time available, the Secretary's final 
        recommendations under such paragraph for that year.
The Secretary shall include in the publication referred to in 
subparagraph (A) for a fiscal year the report of the 
Commission's recommendations submitted under paragraph (3) for 
that fiscal year. To the extent that the Secretary's 
recommendations under paragraph (4) differ from the 
Commission's recommendations for that fiscal year, the 
Secretary shall include in the publication referred to in 
subparagraph (A) an explanation of the Secretary's grounds for 
not following the Commission's recommendations.
  (f)(1)(A) The Secretary shall maintain a system for the 
reporting of costs of hospitals receiving payments computed 
under subsection (d).
  (B)(i) Subject to clause (ii), the Secretary shall place into 
effect a standardized electronic cost reporting format for 
hospitals under this title.
  (ii) The Secretary may delay or waive the implementation of 
such format in particular instances where such implementation 
would result in financial hardship (in particular with respect 
to hospitals with a small percentage of inpatients entitled to 
benefits under this title).
  (2) If the Secretary determines, based upon information 
supplied by a quality improvement organization under part B of 
title XI, that a hospital, in order to circumvent the payment 
method established under subsection (b) or (d) of this section, 
has taken an action that results in the admission of 
individuals entitled to benefits under part A unnecessarily, 
unnecessary multiple admissions of the same such individuals, 
or other inappropriate medical or other practices with respect 
to such individuals, the Secretary may--
          (A) deny payment (in whole or in part) under part A 
        with respect to inpatient hospital services provided 
        with respect to such an unnecessary admission (or 
        subsequent admission of the same individual), or
          (B) require the hospital to take other corrective 
        action necessary to prevent or correct the 
        inappropriate practice.
  (3) The provisions of subsections (c) through (g) of section 
1128 shall apply to determinations made under paragraph (2) in 
the same manner as they apply to exclusions effected under 
section 1128(b)(13).
  (g)(1)(A) Notwithstanding section 1861(v), instead of any 
amounts that are otherwise payable under this title with 
respect to the reasonable costs of subsection (d) hospitals and 
subsection (d) Puerto Rico hospitals for capital-related costs 
of inpatient hospital services, the Secretary shall, for 
hospital cost reporting periods beginning on or after October 
1, 1991, provide for payments for such costs in accordance with 
a prospective payment system established by the Secretary. 
Aggregate payments made under subsection (d) and this 
subsection during fiscal years 1992 through 1995 shall be 
reduced in a manner that results in a reduction (as estimated 
by the Secretary) in the amount of such payments equal to a 10 
percent reduction in the amount of payments attributable to 
capital-related costs that would otherwise have been made 
during such fiscal year had the amount of such payments been 
based on reasonable costs (as defined in section 1861(v)). For 
discharges occurring after September 30, 1993, the Secretary 
shall reduce by 7.4 percent the unadjusted standard Federal 
capital payment rate (as described in 42 CFR 412.308(c), as in 
effect on the date of the enactment of the Omnibus Budget 
Reconciliation Act of 1993) and shall (for hospital cost 
reporting periods beginning on or after October 1, 1993) 
redetermine which payment methodology is applied to the 
hospital under such system to take into account such reduction. 
In addition to the reduction described in the preceding 
sentence, for discharges occurring on or after October 1, 1997, 
the Secretary shall apply the budget neutrality adjustment 
factor used to determine the Federal capital payment rate in 
effect on September 30, 1995 (as described in section 412.352 
of title 42 of the Code of Federal Regulations), to (i) the 
unadjusted standard Federal capital payment rate (as described 
in section 412.308(c) of that title, as in effect on September 
30, 1997), and (ii) the unadjusted hospital-specific rate (as 
described in section 412.328(e)(1) of that title, as in effect 
on September 30, 1997), and, for discharges occurring on or 
after October 1, 1997, and before October 1, 2002, reduce the 
rates described in clauses (i) and (ii) by 2.1 percent.
  (B) Such system--
          (i) shall provide for (I) a payment on a per 
        discharge basis, and (II) an appropriate weighting of 
        such payment amount as relates to the classification of 
        the discharge;
          (ii) may provide for an adjustment to take into 
        account variations in the relative costs of capital and 
        construction for the different types of facilities or 
        areas in which they are located;
          (iii) may provide for such exceptions (including 
        appropriate exceptions to reflect capital obligations) 
        as the Secretary determines to be appropriate, and
          (iv) may provide for suitable adjustment to reflect 
        hospital occupancy rate.
  (C) In this paragraph, the term ``capital-related costs'' has 
the meaning given such term by the Secretary under subsection 
(a)(4) as of September 30, 1987, and does not include a return 
on equity capital.
  (2)(A) The Secretary shall provide that the amount which is 
allowable, with respect to reasonable costs of inpatient 
hospital services for which payment may be made under this 
title, for a return on equity capital for hospitals shall, for 
cost reporting periods beginning on or after the date of the 
enactment of this subsection, be equal to amounts otherwise 
allowable under regulations in effect on March 1, 1983, except 
that the rate of return to be recognized shall be equal to the 
applicable percentage (described in subparagraph (B)) of the 
average of the rates of interest, for each of the months any 
part of which is included in the reporting period, on 
obligations issued for purchase by the Federal Hospital 
Insurance Trust Fund.
  (B) In this paragraph, the ``applicable percentage'' is--
          (i) 75 percent, for cost reporting periods beginning 
        during fiscal year 1987,
          (ii) 50 percent, for cost reporting periods beginning 
        during fiscal year 1988,
          (iii) 25 percent, for cost reporting periods 
        beginning during fiscal year 1989, and
          (iv) 0 percent, for cost reporting periods beginning 
        on or after October 1, 1989.
  (3)(A) Except as provided in subparagraph (B), in determining 
the amount of the payments that may be made under this title 
with respect to all the capital-related costs of inpatient 
hospital services of a subsection (d) hospital and a subsection 
(d) Puerto Rico hospital, the Secretary shall reduce the 
amounts of such payments otherwise established under this title 
by--
          (i) 3.5 percent for payments attributable to portions 
        of cost reporting periods occurring during fiscal year 
        1987,
          (ii) 7 percent for payments attributable to portions 
        of cost reporting periods or discharges (as the case 
        may be) occurring during fiscal year 1988 on or after 
        October 1, 1987, and before January 1, 1988,
          (iii) 12 percent for payments attributable to 
        portions of cost reporting periods or discharges (as 
        the case may be) in fiscal year 1988, occurring on or 
        after January 1, 1988,
          (iv) 15 percent for payments attributable to portions 
        of cost reporting periods or discharges (as the case 
        may be) occurring during fiscal year 1989, and
          (v) 15 percent for payments attributable to portions 
        of cost reporting periods or discharges (as the case 
        may be) occurring during the period beginning January 
        1, 1990, and ending September 30, 1991.
  (B) Subparagraph (A) shall not apply to payments with respect 
to the capital-related costs of any hospital that is a sole 
community hospital (as defined in subsection (d)(5)(D)(iii)) or 
a critical access hospital (as defined in section 1861(mm)(1)).
  (4) In determining the amount of the payments that are 
attributable to portions of cost reporting periods occurring 
during fiscal years 1998 through 2002 and that may be made 
under this title with respect to capital-related costs of 
inpatient hospital services of a hospital which is described in 
clause (i), (ii), or (iv) of subsection (d)(1)(B) or a unit 
described in the matter after clause (v) of such subsection, 
the Secretary shall reduce the amounts of such payments 
otherwise determined under this title by 15 percent.
  (h) Payments for Direct Graduate Medical Education Costs.--
          (1) Substitution of special payment rules.--
        Notwithstanding section 1861(v), instead of any amounts 
        that are otherwise payable under this title with 
        respect to the reasonable costs of hospitals for direct 
        graduate medical education costs, the Secretary shall 
        provide for payments for such costs in accordance with 
        paragraph (3) of this subsection. In providing for such 
        payments, the Secretary shall provide for an allocation 
        of such payments between part A and part B (and the 
        trust funds established under the respective parts) as 
        reasonably reflects the proportion of direct graduate 
        medical education costs of hospitals associated with 
        the provision of services under each respective part.
          (2) Determination of hospital-specific approved fte 
        resident amounts.--The Secretary shall determine, for 
        each hospital with an approved medical residency 
        training program, an approved FTE resident amount for 
        each cost reporting period beginning on or after July 
        1, 1985, as follows:
                  (A) Determining allowable average cost per 
                fte resident in a hospital's base period.--The 
                Secretary shall determine, for the hospital's 
                cost reporting period that began during fiscal 
                year 1984, the average amount recognized as 
                reasonable under this title for direct graduate 
                medical education costs of the hospital for 
                each full-time-equivalent resident.
                  (B) Updating to the first cost reporting 
                period.--
                          (i) In general.--The Secretary shall 
                        update each average amount determined 
                        under subparagraph (A) by the 
                        percentage increase in the consumer 
                        price index during the 12-month cost 
                        reporting period described in such 
                        subparagraph.
                          (ii) Exception.--The Secretary shall 
                        not perform an update under clause (i) 
                        in the case of a hospital if the 
                        hospital's reporting period, described 
                        in subparagraph (A), began on or after 
                        July 1, 1984, and before October 1, 
                        1984.
                  (C) Amount for first cost reporting period.--
                For the first cost reporting period of the 
                hospital beginning on or after July 1, 1985, 
                the approved FTE resident amount for the 
                hospital is equal to the amount determined 
                under subparagraph (B) increased by 1 percent.
                  (D) Amount for subsequent cost reporting 
                periods.--
                          (i) In general.--Except as provided 
                        in a subsequent clause, for each 
                        subsequent cost reporting period, the 
                        approved FTE resident amount for the 
                        hospital is equal to the approved FTE 
                        resident amount determined under this 
                        paragraph for the previous cost 
                        reporting period updated, through the 
                        midpoint of the period, by projecting 
                        the estimated percentage change in the 
                        consumer price index during the 12-
                        month period ending at that midpoint, 
                        with appropriate adjustments to reflect 
                        previous under-or over-estimations 
                        under this subparagraph in the 
                        projected percentage change in the 
                        consumer price index.
                          (ii) Freeze in update for fiscal 
                        years 1994 and 1995.--For cost 
                        reporting periods beginning during 
                        fiscal year 1994 or fiscal year 1995, 
                        the approved FTE resident amount for a 
                        hospital shall not be updated under 
                        clause (i) for a resident who is not a 
                        primary care resident (as defined in 
                        paragraph (5)(H)) or a resident 
                        enrolled in an approved medical 
                        residency training program in 
                        obstetrics and gynecology.
                          (iii) Floor for locality adjusted 
                        national average per resident amount.--
                        The approved FTE resident amount for a 
                        hospital for the cost reporting period 
                        beginning during fiscal year 2001 shall 
                        not be less than 70 percent, and for 
                        the cost reporting period beginning 
                        during fiscal year 2002 shall not be 
                        less than 85 percent, of the locality 
                        adjusted national average per resident 
                        amount computed under subparagraph (E) 
                        for the hospital and period.
                          (iv) Adjustment in rate of increase 
                        for hospitals with fte approved amount 
                        above 140 percent of locality adjusted 
                        national average per resident amount.--
                                  (I) Freeze for fiscal years 
                                2001 and 2002 and 2004 through 
                                2013.--For a cost reporting 
                                period beginning during fiscal 
                                year 2001 or fiscal year 2002 
                                or during the period beginning 
                                with fiscal year 2004 and 
                                ending with fiscal year 2013, 
                                if the approved FTE resident 
                                amount for a hospital for the 
                                preceding cost reporting period 
                                exceeds 140 percent of the 
                                locality adjusted national 
                                average per resident amount 
                                computed under subparagraph (E) 
                                for that hospital and period, 
                                subject to subclause (III), the 
                                approved FTE resident amount 
                                for the period involved shall 
                                be the same as the approved FTE 
                                resident amount for the 
                                hospital for such preceding 
                                cost reporting period.
                                  (II)  2 percent decrease in 
                                update for fiscal years 2003, 
                                2004, and 2005.--For the cost 
                                reporting period beginning 
                                during fiscal year 2003, if the 
                                approved FTE resident amount 
                                for a hospital for the 
                                preceding cost reporting period 
                                exceeds 140 percent of the 
                                locality adjusted national 
                                average per resident amount 
                                computed under subparagraph (E) 
                                for that hospital and preceding 
                                period, the approved FTE 
                                resident amount for the period 
                                involved shall be updated in 
                                the manner described in 
                                subparagraph (D)(i) except 
                                that, subject to subclause 
                                (III), the consumer price index 
                                applied for a 12-month period 
                                shall be reduced (but not below 
                                zero) by 2 percentage points.
                                  (III) No adjustment below 140 
                                percent.--In no case shall 
                                subclause (I) or (II) reduce an 
                                approved FTE resident amount 
                                for a hospital for a cost 
                                reporting period below 140 
                                percent of the locality 
                                adjusted national average per 
                                resident amount computed under 
                                subparagraph (E) for such 
                                hospital and period.
                  (E) Determination of locality adjusted 
                national average per resident amount.--The 
                Secretary shall determine a locality adjusted 
                national average per resident amount with 
                respect to a cost reporting period of a 
                hospital beginning during a fiscal year as 
                follows:
                          (i) Determining hospital single per 
                        resident amount.--The Secretary shall 
                        compute for each hospital operating an 
                        approved graduate medical education 
                        program a single per resident amount 
                        equal to the average (weighted by 
                        number of full-time equivalent 
                        residents, as determined under 
                        paragraph (4)) of the primary care per 
                        resident amount and the non-primary 
                        care per resident amount computed under 
                        paragraph (2) for cost reporting 
                        periods ending during fiscal year 1997.
                          (ii) Standardizing per resident 
                        amounts.--The Secretary shall compute a 
                        standardized per resident amount for 
                        each such hospital by dividing the 
                        single per resident amount computed 
                        under clause (i) by an average of the 3 
                        geographic index values (weighted by 
                        the national average weight for each of 
                        the work, practice expense, and 
                        malpractice components) as applied 
                        under section 1848(e) for 1999 for the 
                        fee schedule area in which the hospital 
                        is located.
                          (iii) Computing of weighted 
                        average.--The Secretary shall compute 
                        the average of the standardized per 
                        resident amounts computed under clause 
                        (ii) for such hospitals, with the 
                        amount for each hospital weighted by 
                        the average number of full-time 
                        equivalent residents at such hospital 
                        (as determined under paragraph (4)).
                          (iv) Computing national average per 
                        resident amount.--The Secretary shall 
                        compute the national average per 
                        resident amount, for a hospital's cost 
                        reporting period that begins during 
                        fiscal year 2001, equal to the weighted 
                        average computed under clause (iii) 
                        increased by the estimated percentage 
                        increase in the consumer price index 
                        for all urban consumers during the 
                        period beginning with the month that 
                        represents the midpoint of the cost 
                        reporting periods described in clause 
                        (i) and ending with the midpoint of the 
                        hospital's cost reporting period that 
                        begins during fiscal year 2001.
                          (v) Adjusting for locality.--The 
                        Secretary shall compute the product 
                        of--
                                  (I) the national average per 
                                resident amount computed under 
                                clause (iv) for the hospital, 
                                and
                                  (II) the geographic index 
                                value average (described and 
                                applied under clause (ii)) for 
                                the fee schedule area in which 
                                the hospital is located.
                          (vi) Computing locality adjusted 
                        amount.--The locality adjusted national 
                        per resident amount for a hospital 
                        for--
                                  (I) the cost reporting period 
                                beginning during fiscal year 
                                2001 is the product computed 
                                under clause (v); or
                                  (II) each subsequent cost 
                                reporting period is equal to 
                                the locality adjusted national 
                                per resident amount for the 
                                hospital for the previous cost 
                                reporting period (as determined 
                                under this clause) updated, 
                                through the midpoint of the 
                                period, by projecting the 
                                estimated percentage change in 
                                the consumer price index for 
                                all urban consumers during the 
                                12-month period ending at that 
                                midpoint.
                  (F) Treatment of certain hospitals.--In the 
                case of a hospital that did not have an 
                approved medical residency training program or 
                was not participating in the program under this 
                title for a cost reporting period beginning 
                during fiscal year 1984, the Secretary shall, 
                for the first such period for which it has such 
                a residency training program and is 
                participating under this title, provide for 
                such approved FTE resident amount as the 
                Secretary determines to be appropriate, based 
                on approved FTE resident amounts for comparable 
                programs.
          (3) Hospital payment amount per resident.--
                  (A) In general.--The payment amount, for a 
                hospital cost reporting period beginning on or 
                after July 1, 1985, is equal to the product 
                of--
                          (i) the aggregate approved amount (as 
                        defined in subparagraph (B)) for that 
                        period, and
                          (ii) the hospital's medicare patient 
                        load (as defined in subparagraph (C)) 
                        for that period.
                  (B) Aggregate approved amount.--As used in 
                subparagraph (A), the term ``aggregate approved 
                amount'' means, for a hospital cost reporting 
                period, the product of--
                          (i) the hospital's approved FTE 
                        resident amount (determined under 
                        paragraph (2)) for that period, and
                          (ii) the weighted average number of 
                        full-time-equivalent residents (as 
                        determined under paragraph (4)) in the 
                        hospital's approved medical residency 
                        training programs in that period.
        The Secretary shall reduce the aggregate approved 
        amount to the extent payment is made under subsection 
        (k) for residents included in the hospital's count of 
        full-time equivalent residents.
                  (C) Medicare patient load.--As used in 
                subparagraph (A), the term ``medicare patient 
                load'' means, with respect to a hospital's cost 
                reporting period, the fraction of the total 
                number of inpatient-bed-days (as established by 
                the Secretary) during the period which are 
                attributable to patients with respect to whom 
                payment may be made under part A.
                  (D) Payment for managed care enrollees.--
                          (i) In general.--For portions of cost 
                        reporting periods occurring on or after 
                        January 1, 1998, the Secretary shall 
                        provide for an additional payment 
                        amount under this subsection for 
                        services furnished to individuals who 
                        are enrolled under a risk-sharing 
                        contract with an eligible organization 
                        under section 1876 and who are entitled 
                        to part A or with a Medicare+Choice 
                        organization under part C. The amount 
                        of such a payment shall equal, subject 
                        to clause (iii), the applicable 
                        percentage of the product of--
                                  (I) the aggregate approved 
                                amount (as defined in 
                                subparagraph (B)) for that 
                                period; and
                                  (II) the fraction of the 
                                total number of inpatient-bed 
                                days (as established by the 
                                Secretary) during the period 
                                which are attributable to such 
                                enrolled individuals.
                          (ii) Applicable percentage.--For 
                        purposes of clause (i), the applicable 
                        percentage is--
                                  (I) 20 percent in 1998,
                                  (II) 40 percent in 1999,
                                  (III) 60 percent in 2000,
                                  (IV) 80 percent in 2001, and
                                  (V) 100 percent in 2002 and 
                                subsequent years.
                          (iii) Proportional reduction for 
                        nursing and allied health education.--
                        The Secretary shall estimate a 
                        proportional adjustment in payments to 
                        all hospitals determined under clauses 
                        (i) and (ii) for portions of cost 
                        reporting periods beginning in a year 
                        (beginning with 2000) such that the 
                        proportional adjustment reduces 
                        payments in an amount for such year 
                        equal to the total additional payment 
                        amounts for nursing and allied health 
                        education determined under subsection 
                        (l) for portions of cost reporting 
                        periods occurring in that year.
                          (iv) Special rule for hospitals under 
                        reimbursement system.--The Secretary 
                        shall establish rules for the 
                        application of this subparagraph to a 
                        hospital reimbursed under a 
                        reimbursement system authorized under 
                        section 1814(b)(3) in the same manner 
                        as it would apply to the hospital if it 
                        were not reimbursed under such section.
          (4) Determination of full-time-equivalent 
        residents.--
                  (A) Rules.--The Secretary shall establish 
                rules consistent with this paragraph for the 
                computation of the number of full-time- 
                equivalent residents in an approved medical 
                residency training program.
                  (B) Adjustment for part-year or part-time 
                residents.--Such rules shall take into account 
                individuals who serve as residents for only a 
                portion of a period with a hospital or 
                simultaneously with more than one hospital.
                  (C) Weighting factors for certain 
                residents.--Subject to subparagraph (D), such 
                rules shall provide, in calculating the number 
                of full-time-equivalent residents in an 
                approved residency program--
                          (i) before July 1, 1986, for each 
                        resident the weighting factor is 1.00,
                          (ii) on or after July 1, 1986, for a 
                        resident who is in the resident's 
                        initial residency period (as defined in 
                        paragraph (5)(F)), the weighting factor 
                        is 1.00,
                          (iii) on or after July 1, 1986, and 
                        before July 1, 1987, for a resident who 
                        is not in the resident's initial 
                        residency period (as defined in 
                        paragraph (5)(F)), the weighting factor 
                        is .75, and
                          (iv) on or after July 1, 1987, for a 
                        resident who is not in the resident's 
                        initial residency period (as defined in 
                        paragraph (5)(F)), the weighting factor 
                        is .50.
                  (D) Foreign medical graduates required to 
                pass fmgems examination.--
                          (i) In general.--Except as provided 
                        in clause (ii), such rules shall 
                        provide that, in the case of an 
                        individual who is a foreign medical 
                        graduate (as defined in paragraph 
                        (5)(D)), the individual shall not be 
                        counted as a resident on or after July 
                        1, 1986, unless--
                                  (I) the individual has passed 
                                the FMGEMS examination (as 
                                defined in paragraph (5)(E)), 
                                or
                                  (II) the individual has 
                                previously received 
                                certification from, or has 
                                previously passed the 
                                examination of, the Educational 
                                Commission for Foreign Medical 
                                Graduates.
                          (ii) Transition for current fmgs.--On 
                        or after July 1, 1986, but before July 
                        1, 1987, in the case of a foreign 
                        medical graduate who--
                                  (I) has served as a resident 
                                before July 1, 1986, and is 
                                serving as a resident after 
                                that date, but
                                  (II) has not passed the 
                                FMGEMS examination or a 
                                previous examination of the 
                                Educational Commission for 
                                Foreign Medical Graduates 
                                before July 1, 1986,
                        the individual shall be counted as a 
                        resident at a rate equal to one-half of 
                        the rate at which the individual would 
                        otherwise be counted.
                  (E) Counting time spent in outpatient 
                settings.--Subject to subparagraphs (J) and 
                (K), such rules shall provide that only time 
                spent in activities relating to patient care 
                shall be counted and that--
                          (i) effective for cost reporting 
                        periods beginning before July 1, 2010, 
                        all the time;
                          (ii) effective for cost reporting 
                        periods beginning on or after July 1, 
                        2010, all the time so spent by a 
                        resident shall be counted towards the 
                        determination of full-time equivalency, 
                        without regard to the setting in which 
                        the activities are performed, if a 
                        hospital incurs the costs of the 
                        stipends and fringe benefits of the 
                        resident during the time the resident 
                        spends in that setting. If more than 
                        one hospital incurs these costs, either 
                        directly or through a third party, such 
                        hospitals shall count a proportional 
                        share of the time, as determined by 
                        written agreement between the 
                        hospitals, that a resident spends 
                        training in that setting.
                so spent by a resident under an approved 
                medical residency training program shall be 
                counted towards the determination of full-time 
                equivalency, without regard to the setting in 
                which the activities are performed, if the 
                hospital incurs all, or substantially all, of 
                the costs for the training program in that 
                setting.
                Any hospital claiming under this subparagraph 
                for time spent in a nonprovider setting shall 
                maintain and make available to the Secretary 
                records regarding the amount of such time and 
                such amount in comparison with amounts of such 
                time in such base year as the Secretary shall 
                specify.
                  (F) Limitation on number of residents in 
                allopathic and osteopathic medicine.--
                          (i) In general.--Such rules shall 
                        provide that for purposes of a cost 
                        reporting period beginning on or after 
                        October 1, 1997, subject to paragraphs 
                        (7) and (8), the total number of full-
                        time equivalent residents before 
                        application of weighting factors (as 
                        determined under this paragraph) with 
                        respect to a hospital's approved 
                        medical residency training program in 
                        the fields of allopathic medicine and 
                        osteopathic medicine may not exceed the 
                        number (or, 130 percent of such number 
                        in the case of a hospital located in a 
                        rural area) of such full-time 
                        equivalent residents for the hospital's 
                        most recent cost reporting period 
                        ending on or before December 31, 1996.
                          (ii) Counting primary care residents 
                        on certain approved leaves of absence 
                        in base year fte count.--
                                  (I) In general.--In 
                                determining the number of such 
                                full-time equivalent residents 
                                for a hospital's most recent 
                                cost reporting period ending on 
                                or before December 31, 1996, 
                                for purposes of clause (i), the 
                                Secretary shall count an 
                                individual to the extent that 
                                the individual would have been 
                                counted as a primary care 
                                resident for such period but 
                                for the fact that the 
                                individual, as determined by 
                                the Secretary, was on maternity 
                                or disability leave or a 
                                similar approved leave of 
                                absence.
                                  (II) Limitation to 3 fte 
                                residents for any hospital.--
                                The total number of individuals 
                                counted under subclause (I) for 
                                a hospital may not exceed 3 
                                full-time equivalent residents.
                  (G) Counting interns and residents for fy 
                1998 and subsequent years.--
                          (i) In general.--For cost reporting 
                        periods beginning during fiscal years 
                        beginning on or after October 1, 1997, 
                        subject to the limit described in 
                        subparagraph (F), the total number of 
                        full-time equivalent residents for 
                        determining a hospital's graduate 
                        medical education payment shall equal 
                        the average of the actual full-time 
                        equivalent resident counts for the cost 
                        reporting period and the preceding two 
                        cost reporting periods.
                          (ii) Adjustment for short periods.--
                        If any cost reporting period beginning 
                        on or after October 1, 1997, is not 
                        equal to twelve months, the Secretary 
                        shall make appropriate modifications to 
                        ensure that the average full-time 
                        equivalent resident counts pursuant to 
                        clause (i) are based on the equivalent 
                        of full twelve-month cost reporting 
                        periods.
                          (iii) Transition rule for 1998.--In 
                        the case of a hospital's first cost 
                        reporting period beginning on or after 
                        October 1, 1997, clause (i) shall be 
                        applied by using the average for such 
                        period and the preceding cost reporting 
                        period.
                  (H) Special rules for application of 
                subparagraphs (f) and (g).--
                          (i) New facilities.--The Secretary 
                        shall, consistent with the principles 
                        of subparagraphs (F) and (G) and 
                        subject to paragraphs (7) and (8), 
                        prescribe rules for the application of 
                        such subparagraphs in the case of 
                        medical residency training programs 
                        established on or after January 1, 
                        1995. In promulgating such rules for 
                        purposes of subparagraph (F), the 
                        Secretary shall give special 
                        consideration to facilities that meet 
                        the needs of underserved rural areas.
                          (ii) Aggregation.--The Secretary may 
                        prescribe rules which allow 
                        institutions which are members of the 
                        same affiliated group (as defined by 
                        the Secretary) to elect to apply the 
                        limitation of subparagraph (F) on an 
                        aggregate basis.
                          (iii) Data collection.--The Secretary 
                        may require any entity that operates a 
                        medical residency training program and 
                        to which subparagraphs (F) and (G) 
                        apply to submit to the Secretary such 
                        additional information as the Secretary 
                        considers necessary to carry out such 
                        subparagraphs.
                          (iv) Nonrural hospitals operating 
                        training programs in rural areas.--In 
                        the case of a hospital that is not 
                        located in a rural area but establishes 
                        separately accredited approved medical 
                        residency training programs (or rural 
                        tracks) in an rural area or has an 
                        accredited training program with an 
                        integrated rural track, the Secretary 
                        shall adjust the limitation under 
                        subparagraph (F) in an appropriate 
                        manner insofar as it applies to such 
                        programs in such rural areas in order 
                        to encourage the training of physicians 
                        in rural areas.
                          (v) Special provider agreement.--If 
                        an entity enters into a provider 
                        agreement pursuant to section 1866(a) 
                        to provide hospital services on the 
                        same physical site previously used by 
                        Medicare Provider No. 05-0578--
                                  (I) the limitation on the 
                                number of total full time 
                                equivalent residents under 
                                subparagraph (F) and clauses 
                                (v) and (vi)(I) of subsection 
                                (d)(5)(B) applicable to such 
                                provider shall be equal to the 
                                limitation applicable under 
                                such provisions to Provider No. 
                                05-0578 for its cost reporting 
                                period ending on June 30, 2006; 
                                and
                                  (II) the provisions of 
                                subparagraph (G) and subsection 
                                (d)(5)(B)(vi)(II) shall not be 
                                applicable to such provider for 
                                the first three cost reporting 
                                years in which such provider 
                                trains residents under any 
                                approved medical residency 
                                training program.
                          (vi) Redistribution of residency 
                        slots after a hospital closes.--
                                  (I) In general.--Subject to 
                                the succeeding provisions of 
                                this clause, the Secretary 
                                shall, by regulation, establish 
                                a process under which, in the 
                                case where a hospital (other 
                                than a hospital described in 
                                clause (v)) with an approved 
                                medical residency program 
                                closes on or after a date that 
                                is 2 years before the date of 
                                enactment of this clause, the 
                                Secretary shall increase the 
                                otherwise applicable resident 
                                limit under this paragraph for 
                                other hospitals in accordance 
                                with this clause.
                                  (II) Priority for hospitals 
                                in certain areas.--Subject to 
                                the succeeding provisions of 
                                this clause, in determining for 
                                which hospitals the increase in 
                                the otherwise applicable 
                                resident limit is provided 
                                under such process, the 
                                Secretary shall distribute the 
                                increase to hospitals in the 
                                following priority order (with 
                                preference given within each 
                                category to hospitals that are 
                                members of the same affiliated 
                                group (as defined by the 
                                Secretary under clause (ii)) as 
                                the closed hospital):
                                          (aa) First, to 
                                        hospitals located in 
                                        the same core-based 
                                        statistical area as, or 
                                        a core-based 
                                        statistical area 
                                        contiguous to, the 
                                        hospital that closed.
                                          (bb) Second, to 
                                        hospitals located in 
                                        the same State as the 
                                        hospital that closed.
                                          (cc) Third, to 
                                        hospitals located in 
                                        the same region of the 
                                        country as the hospital 
                                        that closed.
                                          (dd) Fourth, only if 
                                        the Secretary is not 
                                        able to distribute the 
                                        increase to hospitals 
                                        described in item (cc), 
                                        to qualifying hospitals 
                                        in accordance with the 
                                        provisions of paragraph 
                                        (8).
                                  (III) Requirement hospital 
                                likely to fill position within 
                                certain time period.--The 
                                Secretary may only increase the 
                                otherwise applicable resident 
                                limit of a hospital under such 
                                process if the Secretary 
                                determines the hospital has 
                                demonstrated a likelihood of 
                                filling the positions made 
                                available under this clause 
                                within 3 years.
                                  (IV) Limitation.--The 
                                aggregate number of increases 
                                in the otherwise applicable 
                                resident limits for hospitals 
                                under this clause shall be 
                                equal to the number of resident 
                                positions in the approved 
                                medical residency programs that 
                                closed on or after the date 
                                described in subclause (I).
                                  (V) Administration.--Chapter 
                                35 of title 44, United States 
                                Code, shall not apply to the 
                                implementation of this clause.
                  (J) Treatment of certain nonprovider and 
                didactic activities.--Such rules shall provide 
                that all time spent by an intern or resident in 
                an approved medical residency training program 
                in a nonprovider setting that is primarily 
                engaged in furnishing patient care (as defined 
                in paragraph (5)(K)) in non-patient care 
                activities, such as didactic conferences and 
                seminars, but not including research not 
                associated with the treatment or diagnosis of a 
                particular patient, as such time and activities 
                are defined by the Secretary, shall be counted 
                toward the determination of full-time 
                equivalency.
                  (K) Treatment of certain other activities.--
                In determining the hospital's number of full-
                time equivalent residents for purposes of this 
                subsection, all the time that is spent by an 
                intern or resident in an approved medical 
                residency training program on vacation, sick 
                leave, or other approved leave, as such time is 
                defined by the Secretary, and that does not 
                prolong the total time the resident is 
                participating in the approved program beyond 
                the normal duration of the program shall be 
                counted toward the determination of full-time 
                equivalency.
          (5) Definitions and special rules.--As used in this 
        subsection:
                  (A) Approved medical residency training 
                program.--The term ``approved medical residency 
                training program'' means a residency or other 
                postgraduate medical training program 
                participation in which may be counted toward 
                certification in a specialty or subspecialty 
                and includes formal postgraduate training 
                programs in geriatric medicine approved by the 
                Secretary.
                  (B) Consumer price index.--The term 
                ``consumer price index'' refers to the Consumer 
                Price Index for All Urban Consumers (United 
                States city average), as published by the 
                Secretary of Commerce.
                  (C) Direct graduate medical education 
                costs.--The term ``direct graduate medical 
                education costs'' means direct costs of 
                approved educational activities for approved 
                medical residency training programs.
                  (D) Foreign medical graduate.--The term 
                ``foreign medical graduate'' means a resident 
                who is not a graduate of--
                          (i) a school of medicine accredited 
                        by the Liaison Committee on Medical 
                        Education of the American Medical 
                        Association and the Association of 
                        American Medical Colleges (or approved 
                        by such Committee as meeting the 
                        standards necessary for such 
                        accreditation),
                          (ii) a school of osteopathy 
                        accredited by the American Osteopathic 
                        Association, or approved by such 
                        Association as meeting the standards 
                        necessary for such accreditation, or
                          (iii) a school of dentistry or 
                        podiatry which is accredited (or meets 
                        the standards for accreditation) by an 
                        organization recognized by the 
                        Secretary for such purpose.
                  (E) FMGEMS examination.--The term ``FMGEMS 
                examination'' means parts I and II of the 
                Foreign Medical Graduate Examination in the 
                Medical Sciences or any successor examination 
                recognized by the Secretary for this purpose.
                  (F) Initial residency period.--The term 
                ``initial residency period'' means the period 
                of board eligibility, except that--
                          (i) except as provided in clause 
                        (ii), in no case shall the initial 
                        period of residency exceed an aggregate 
                        period of formal training of more than 
                        five years for any individual, and
                          (ii) a period, of not more than two 
                        years, during which an individual is in 
                        a geriatric residency or fellowship 
                        program or a preventive medicine 
                        residency or fellowship program which 
                        meets such criteria as the Secretary 
                        may establish, shall be treated as part 
                        of the initial residency period, but 
                        shall not be counted against any 
                        limitation on the initial residency 
                        period.
                Subject to subparagraph (G)(v), the initial 
                residency period shall be determined, with 
                respect to a resident, as of the time the 
                resident enters the residency training program.
                  (G) Period of board eligibility.--
                          (i) General rule.--Subject to clauses 
                        (ii), (iii), (iv), and (v), the term 
                        ``period of board eligibility'' means, 
                        for a resident, the minimum number of 
                        years of formal training necessary to 
                        satisfy the requirements for initial 
                        board eligibility in the particular 
                        specialty for which the resident is 
                        training.
                          (ii) Application of 1985-1986 
                        directory.--Except as provided in 
                        clause (iii), the period of board 
                        eligibility shall be such period 
                        specified in the 1985-1986 Directory of 
                        Residency Training Programs published 
                        by the Accreditation Council on 
                        Graduate Medical Education.
                          (iii) Changes in period of board 
                        eligibility.--On or after July 1, 1989, 
                        if the Accreditation Council on 
                        Graduate Medical Education, in its 
                        Directory of Residency Training 
                        Programs--
                                  (I) increases the minimum 
                                number of years of formal 
                                training necessary to satisfy 
                                the requirements for a 
                                specialty, above the period 
                                specified in its 1985-1986 
                                Directory, the Secretary may 
                                increase the period of board 
                                eligibility for that specialty, 
                                but not to exceed the period of 
                                board eligibility specified in 
                                that later Directory, or
                                  (II) decreases the minimum 
                                number of years of formal 
                                training necessary to satisfy 
                                the requirements for a 
                                specialty, below the period 
                                specified in its 1985-1986 
                                Directory, the Secretary may 
                                decrease the period of board 
                                eligibility for that specialty, 
                                but not below the period of 
                                board eligibility specified in 
                                that later Directory.
                          (iv) Special rule for certain primary 
                        care combined residency programs.--(I) 
                        In the case of a resident enrolled in a 
                        combined medical residency training 
                        program in which all of the individual 
                        programs (that are combined) are for 
                        training a primary care resident (as 
                        defined in subparagraph (H)), the 
                        period of board eligibility shall be 
                        the minimum number of years of formal 
                        training required to satisfy the 
                        requirements for initial board 
                        eligibility in the longest of the 
                        individual programs plus one additional 
                        year.
                          (II) A resident enrolled in a 
                        combined medical residency training 
                        program that includes an obstetrics and 
                        gynecology program shall qualify for 
                        the period of board eligibility under 
                        subclause (I) if the other programs 
                        such resident combines with such 
                        obstetrics and gynecology program are 
                        for training a primary care resident.
                          (v) Child neurology training 
                        programs.--In the case of a resident 
                        enrolled in a child neurology residency 
                        training program, the period of board 
                        eligibility and the initial residency 
                        period shall be the period of board 
                        eligibility for pediatrics plus 2 
                        years.
                  (H) Primary care resident.--The term 
                ``primary care resident'' means a resident 
                enrolled in an approved medical residency 
                training program in family medicine, general 
                internal medicine, general pediatrics, 
                preventive medicine, geriatric medicine, or 
                osteopathic general practice.
                  (I) Resident.--The term ``resident'' includes 
                an intern or other participant in an approved 
                medical residency training program.
                  (J) Adjustments for certain family practice 
                residency programs.--
                          (i) In general.--In the case of an 
                        approved medical residency training 
                        program (meeting the requirements of 
                        clause (ii)) of a hospital which 
                        received funds from the United States, 
                        a State, or a political subdivision of 
                        a State or an instrumentality of such a 
                        State or political subdivision (other 
                        than payments under this title or a 
                        State plan under title XIX) for the 
                        program during the cost reporting 
                        period that began during fiscal year 
                        1984, the Secretary shall--
                                  (I) provide for an average 
                                amount under paragraph (2)(A) 
                                that takes into account the 
                                Secretary's estimate of the 
                                amount that would have been 
                                recognized as reasonable under 
                                this title if the hospital had 
                                not received such funds, and
                                  (II) reduce the payment 
                                amount otherwise provided under 
                                this subsection in an amount 
                                equal to the proportion of such 
                                program funds received during 
                                the cost reporting period 
                                involved that is allocable to 
                                this title.
                          (ii) Additional requirements.--A 
                        hospital's approved medical residency 
                        program meets the requirements of this 
                        clause if--
                                  (I) the program is limited to 
                                training for family and 
                                community medicine;
                                  (II) the program is the only 
                                approved medical residency 
                                program of the hospital; and
                                  (III) the average amount 
                                determined under paragraph 
                                (2)(A) for the hospital (as 
                                determined without regard to 
                                the increase in such amount 
                                described in clause (i)(I)) 
                                does not exceed $10,000.
                  (K) Nonprovider setting that is primarily 
                engaged in furnishing patient care.--The term 
                ``nonprovider setting that is primarily engaged 
                in furnishing patient care'' means a 
                nonprovider setting in which the primary 
                activity is the care and treatment of patients, 
                as defined by the Secretary.
          (6) Incentive payment under plans for voluntary 
        reduction in number of residents.--
                  (A) In general.--In the case of a voluntary 
                residency reduction plan for which an 
                application is approved under subparagraph (B), 
                subject to subparagraph (F), each hospital 
                which is part of the qualifying entity 
                submitting the plan shall be paid an applicable 
                hold harmless percentage (as specified in 
                subparagraph (E)) of the sum of--
                          (i) the amount (if any) by which--
                                  (I) the amount of payment 
                                which would have been made 
                                under this subsection if there 
                                had been a 5-percent reduction 
                                in the number of full-time 
                                equivalent residents in the 
                                approved medical education 
                                training programs of the 
                                hospital as of June 30, 1997, 
                                exceeds
                                  (II) the amount of payment 
                                which is made under this 
                                subsection, taking into account 
                                the reduction in such number 
                                effected under the reduction 
                                plan; and
                          (ii) the amount of the reduction in 
                        payment under subsection (d)(5)(B) for 
                        the hospital that is attributable to 
                        the reduction in number of residents 
                        effected under the plan below 95 
                        percent of the number of full-time 
                        equivalent residents in such programs 
                        of the hospital as of June 30, 1997.
                The determination of the amounts under clauses 
                (i) and (ii) for any year shall be made on the 
                basis of the provisions of this title in effect 
                on the application deadline date for the first 
                calendar year to which the reduction plan 
                applies.
                  (B) Approval of plan applications.--The 
                Secretary may not approve the application of an 
                qualifying entity unless--
                          (i) the application is submitted in a 
                        form and manner specified by the 
                        Secretary and by not later than 
                        November 1, 1999,
                          (ii) the application provides for the 
                        operation of a plan for the reduction 
                        in the number of full-time equivalent 
                        residents in the approved medical 
                        residency training programs of the 
                        entity consistent with the requirements 
                        of subparagraph (D);
                          (iii) the entity elects in the 
                        application the period of residency 
                        training years (not greater than 5) 
                        over which the reduction will occur;
                          (iv) the entity will not reduce the 
                        proportion of its residents in primary 
                        care (to the total number of residents) 
                        below such proportion as in effect as 
                        of the applicable time described in 
                        subparagraph (D)(v); and
                          (v) the Secretary determines that the 
                        application and the entity and such 
                        plan meet such other requirements as 
                        the Secretary specifies in regulations.
                  (C) Qualifying entity.--For purposes of this 
                paragraph, any of the following may be a 
                qualifying entity:
                          (i) Individual hospitals operating 
                        one or more approved medical residency 
                        training programs.
                          (ii) Two or more hospitals that 
                        operate such programs and apply for 
                        treatment under this paragraph as a 
                        single qualifying entity.
                          (iii) A qualifying consortium (as 
                        described in section 4628 of the 
                        Balanced Budget Act of 1997).
                  (D) Residency reduction requirements.--
                          (i) Individual hospital applicants.--
                        In the case of a qualifying entity 
                        described in subparagraph (C)(i), the 
                        number of full-time equivalent 
                        residents in all the approved medical 
                        residency training programs operated by 
                        or through the entity shall be reduced 
                        as follows:
                                  (I) If the base number of 
                                residents exceeds 750 
                                residents, by a number equal to 
                                at least 20 percent of such 
                                base number.
                                  (II) Subject to subclause 
                                (IV), if the base number of 
                                residents exceeds 600 but is 
                                less than 750 residents, by 150 
                                residents.
                                  (III) Subject to subclause 
                                (IV), if the base number of 
                                residents does not exceed 600 
                                residents, by a number equal to 
                                at least 25 percent of such 
                                base number.
                                  (IV) In the case of a 
                                qualifying entity which is 
                                described in clause (v) and 
                                which elects treatment under 
                                this subclause, by a number 
                                equal to at least 20 percent of 
                                the base number.
                          (ii) Joint applicants.--In the case 
                        of a qualifying entity described in 
                        subparagraph (C)(ii), the number of 
                        full-time equivalent residents in the 
                        aggregate for all the approved medical 
                        residency training programs operated by 
                        or through the entity shall be reduced 
                        as follows:
                                  (I) Subject to subclause 
                                (II), by a number equal to at 
                                least 25 percent of the base 
                                number.
                                  (II) In the case of such a 
                                qualifying entity which is 
                                described in clause (v) and 
                                which elects treatment under 
                                this subclause, by a number 
                                equal to at least 20 percent of 
                                the base number.
                          (iii) Consortia.--In the case of a 
                        qualifying entity described in 
                        subparagraph (C)(iii), the number of 
                        full-time equivalent residents in the 
                        aggregate for all the approved medical 
                        residency training programs operated by 
                        or through the entity shall be reduced 
                        by a number equal to at least 20 
                        percent of the base number.
                          (iv) Manner of reduction.--The 
                        reductions specified under the 
                        preceding provisions of this 
                        subparagraph for a qualifying entity 
                        shall be below the base number of 
                        residents for that entity and shall be 
                        fully effective not later than the 5th 
                        residency training year in which the 
                        application under subparagraph (B) is 
                        effective.
                          (v) Entities providing assurance of 
                        increase in primary care residents.--An 
                        entity is described in this clause if--
                                  (I) the base number of 
                                residents for the entity is 
                                less than 750 or the entity is 
                                described in subparagraph 
                                (C)(ii); and
                                  (II) the entity represents in 
                                its application under 
                                subparagraph (B) that it will 
                                increase the number of full-
                                time equivalent residents in 
                                primary care by at least 20 
                                percent (from such number 
                                included in the base number of 
                                residents) by not later than 
                                the 5th residency training year 
                                in which the application under 
                                subparagraph (B) is effective.
                        If a qualifying entity fails to comply 
                        with the representation described in 
                        subclause (II) by the end of such 5th 
                        residency training year, the entity 
                        shall be subject to repayment of all 
                        amounts paid under this paragraph, in 
                        accordance with procedures established 
                        to carry out subparagraph (F).
                          (vi) Base number of residents 
                        defined.--For purposes of this 
                        paragraph, the term ``base number of 
                        residents'' means, with respect to a 
                        qualifying entity (or its participating 
                        hospitals) operating approved medical 
                        residency training programs, the number 
                        of full-time equivalent residents in 
                        such programs (before application of 
                        weighting factors) of the entity as of 
                        the most recent residency training year 
                        ending before June 30, 1997, or, if 
                        less, for any subsequent residency 
                        training year that ends before the date 
                        the entity makes application under this 
                        paragraph.
                  (E) Applicable hold harmless percentage.--For 
                purposes of subparagraph (A), the ``applicable 
                hold harmless percentage'' for the--
                          (i) first and second residency 
                        training years in which the reduction 
                        plan is in effect, 100 percent,
                          (ii) third such year, 75 percent,
                          (iii) fourth such year, 50 percent, 
                        and
                          (iv) fifth such year, 25 percent.
                  (F) Penalty for noncompliance.--
                          (i) In general.--No payment may be 
                        made under this paragraph to a hospital 
                        for a residency training year if the 
                        hospital has failed to reduce the 
                        number of full-time equivalent 
                        residents (in the manner required under 
                        subparagraph (D)) to the number agreed 
                        to by the Secretary and the qualifying 
                        entity in approving the application 
                        under this paragraph with respect to 
                        such year.
                          (ii) Increase in number of residents 
                        in subsequent years.--If payments are 
                        made under this paragraph to a 
                        hospital, and if the hospital increases 
                        the number of full-time equivalent 
                        residents above the number of such 
                        residents permitted under the reduction 
                        plan as of the completion of the plan, 
                        then, as specified by the Secretary, 
                        the entity is liable for repayment to 
                        the Secretary of the total amounts paid 
                        under this paragraph to the entity.
                  (G) Treatment of rotating residents.--In 
                applying this paragraph, the Secretary shall 
                establish rules regarding the counting of 
                residents who are assigned to institutions the 
                medical residency training programs in which 
                are not covered under approved applications 
                under this paragraph.
          (7) Redistribution of unused resident positions.--
                  (A) Reduction in limit based on unused 
                positions.--
                          (i) Programs subject to reduction.--
                                  (I) In general.--Except as 
                                provided in subclause (II), if 
                                a hospital's reference resident 
                                level (specified in clause 
                                (ii)) is less than the 
                                otherwise applicable resident 
                                limit (as defined in 
                                subparagraph (C)(ii)), 
                                effective for portions of cost 
                                reporting periods occurring on 
                                or after July 1, 2005, the 
                                otherwise applicable resident 
                                limit shall be reduced by 75 
                                percent of the difference 
                                between such otherwise 
                                applicable resident limit and 
                                such reference resident level.
                                  (II) Exception for small 
                                rural hospitals.--This 
                                subparagraph shall not apply to 
                                a hospital located in a rural 
                                area (as defined in subsection 
                                (d)(2)(D)(ii)) with fewer than 
                                250 acute care inpatient beds.
                          (ii) Reference resident level.--
                                  (I) In general.--Except as 
                                otherwise provided in 
                                subclauses (II) and (III), the 
                                reference resident level 
                                specified in this clause for a 
                                hospital is the resident level 
                                for the most recent cost 
                                reporting period of the 
                                hospital ending on or before 
                                September 30, 2002, for which a 
                                cost report has been settled 
                                (or, if not, submitted (subject 
                                to audit)), as determined by 
                                the Secretary.
                                  (II) Use of most recent 
                                accounting period to recognize 
                                expansion of existing 
                                programs.--If a hospital 
                                submits a timely request to 
                                increase its resident level due 
                                to an expansion of an existing 
                                residency training program that 
                                is not reflected on the most 
                                recent settled cost report, 
                                after audit and subject to the 
                                discretion of the Secretary, 
                                the reference resident level 
                                for such hospital is the 
                                resident level for the cost 
                                reporting period that includes 
                                July 1, 2003, as determined by 
                                the Secretary.
                                  (III) Expansions under newly 
                                approved programs.--Upon the 
                                timely request of a hospital, 
                                the Secretary shall adjust the 
                                reference resident level 
                                specified under subclause (I) 
                                or (II) to include the number 
                                of medical residents that were 
                                approved in an application for 
                                a medical residency training 
                                program that was approved by an 
                                appropriate accrediting 
                                organization (as determined by 
                                the Secretary) before January 
                                1, 2002, but which was not in 
                                operation during the cost 
                                reporting period used under 
                                subclause (I) or (II), as the 
                                case may be, as determined by 
                                the Secretary.
                          (iii) Affiliation.--The provisions of 
                        clause (i) shall be applied to 
                        hospitals which are members of the same 
                        affiliated group (as defined by the 
                        Secretary under paragraph (4)(H)(ii)) 
                        as of July 1, 2003.
                  (B) Redistribution.--
                          (i) In general.--The Secretary is 
                        authorized to increase the otherwise 
                        applicable resident limit for each 
                        qualifying hospital that submits a 
                        timely application under this 
                        subparagraph by such number as the 
                        Secretary may approve for portions of 
                        cost reporting periods occurring on or 
                        after July 1, 2005. The aggregate 
                        number of increases in the otherwise 
                        applicable resident limits under this 
                        subparagraph may not exceed the 
                        Secretary's estimate of the aggregate 
                        reduction in such limits attributable 
                        to subparagraph (A).
                          (ii) Considerations in 
                        redistribution.--In determining for 
                        which hospitals the increase in the 
                        otherwise applicable resident limit is 
                        provided under clause (i), the 
                        Secretary shall take into account the 
                        demonstrated likelihood of the hospital 
                        filling the positions within the first 
                        3 cost reporting periods beginning on 
                        or after July 1, 2005, made available 
                        under this subparagraph, as determined 
                        by the Secretary.
                          (iii) Priority for rural and small 
                        urban areas.--In determining for which 
                        hospitals and residency training 
                        programs an increase in the otherwise 
                        applicable resident limit is provided 
                        under clause (i), the Secretary shall 
                        distribute the increase to programs of 
                        hospitals located in the following 
                        priority order:
                                  (I) First, to hospitals 
                                located in rural areas (as 
                                defined in subsection 
                                (d)(2)(D)(ii)).
                                  (II) Second, to hospitals 
                                located in urban areas that are 
                                not large urban areas (as 
                                defined for purposes of 
                                subsection (d)).
                                  (III) Third, to other 
                                hospitals in a State if the 
                                residency training program 
                                involved is in a specialty for 
                                which there are not other 
                                residency training programs in 
                                the State.
                        Increases of residency limits within 
                        the same priority category under this 
                        clause shall be determined by the 
                        Secretary.
                          (iv) Limitation.--In no case shall 
                        more than 25 full-time equivalent 
                        additional residency positions be made 
                        available under this subparagraph with 
                        respect to any hospital.
                          (v) Application of locality adjusted 
                        national average per resident amount.--
                        With respect to additional residency 
                        positions in a hospital attributable to 
                        the increase provided under this 
                        subparagraph, notwithstanding any other 
                        provision of this subsection, the 
                        approved FTE resident amount is deemed 
                        to be equal to the locality adjusted 
                        national average per resident amount 
                        computed under paragraph (4)(E) for 
                        that hospital.
                          (vi) Construction.--Nothing in this 
                        subparagraph shall be construed as 
                        permitting the redistribution of 
                        reductions in residency positions 
                        attributable to voluntary reduction 
                        programs under paragraph (6), under a 
                        demonstration project approved as of 
                        October 31, 2003, under the authority 
                        of section 402 of Public Law 90-248, or 
                        as affecting the ability of a hospital 
                        to establish new medical residency 
                        training programs under paragraph 
                        (4)(H).
                  (C) Resident level and limit defined.--In 
                this paragraph:
                          (i) Resident level.--The term 
                        ``resident level'' means, with respect 
                        to a hospital, the total number of 
                        full-time equivalent residents, before 
                        the application of weighting factors 
                        (as determined under paragraph (4)), in 
                        the fields of allopathic and 
                        osteopathic medicine for the hospital.
                          (ii) Otherwise applicable resident 
                        limit.--The term ``otherwise applicable 
                        resident limit'' means, with respect to 
                        a hospital, the limit otherwise 
                        applicable under subparagraphs (F)(i) 
                        and (H) of paragraph (4) on the 
                        resident level for the hospital 
                        determined without regard to this 
                        paragraph.
                  (D) Adjustment based on settled cost 
                report.--In the case of a hospital with a dual 
                accredited osteopathic and allopathic family 
                practice program for which--
                          (i) the otherwise applicable resident 
                        limit was reduced under subparagraph 
                        (A)(i)(I); and
                          (ii) such reduction was based on a 
                        reference resident level that was 
                        determined using a cost report and 
                        where a revised or corrected notice of 
                        program reimbursement was issued for 
                        such cost report between September 1, 
                        2006 and September 15, 2006, whether as 
                        a result of an appeal or otherwise, and 
                        the reference resident level under such 
                        settled cost report is higher than the 
                        level used for the reduction under 
                        subparagraph (A)(i)(I);
                the Secretary shall apply subparagraph 
                (A)(i)(I) using the higher resident reference 
                level and make any necessary adjustments to 
                such reduction. Any such necessary adjustments 
                shall be effective for portions of cost 
                reporting periods occurring on or after July 1, 
                2005.
                  (E) Judicial review.--There shall be no 
                administrative or judicial review under section 
                1869, 1878, or otherwise, with respect to 
                determinations made under this this paragraph, 
                paragraph (8), or paragraph (4)(H)(vi).
          (8) Distribution of additional residency positions.--
                  (A) Reductions in limit based on unused 
                positions.--
                          (i) In general.--Except as provided 
                        in clause (ii), if a hospital's 
                        reference resident level (as defined in 
                        subparagraph (H)(i)) is less than the 
                        otherwise applicable resident limit (as 
                        defined in subparagraph (H)(iii)), 
                        effective for portions of cost 
                        reporting periods occurring on or after 
                        July 1, 2011, the otherwise applicable 
                        resident limit shall be reduced by 65 
                        percent of the difference between such 
                        otherwise applicable resident limit and 
                        such reference resident level.
                          (ii) Exceptions.--This subparagraph 
                        shall not apply to--
                                  (I) a hospital located in a 
                                rural area (as defined in 
                                subsection (d)(2)(D)(ii)) with 
                                fewer than 250 acute care 
                                inpatient beds;
                                  (II) a hospital that was part 
                                of a qualifying entity which 
                                had a voluntary residency 
                                reduction plan approved under 
                                paragraph (6)(B) or under the 
                                authority of section 402 of 
                                Public Law 90-248, if the 
                                hospital demonstrates to the 
                                Secretary that it has a 
                                specified plan in place for 
                                filling the unused positions by 
                                not later than 2 years after 
                                the date of enactment of this 
                                paragraph; or
                                  (III) a hospital described in 
                                paragraph (4)(H)(v).
                  (B) Distribution.--
                          (i) In general.--The Secretary shall 
                        increase the otherwise applicable 
                        resident limit for each qualifying 
                        hospital that submits an application 
                        under this subparagraph by such number 
                        as the Secretary may approve for 
                        portions of cost reporting periods 
                        occurring on or after July 1, 2011. The 
                        aggregate number of increases in the 
                        otherwise applicable resident limit 
                        under this subparagraph shall be equal 
                        to the aggregate reduction in such 
                        limits attributable to subparagraph (A) 
                        (as estimated by the Secretary).
                          (ii) Requirements.--Subject to clause 
                        (iii), a hospital that receives an 
                        increase in the otherwise applicable 
                        resident limit under this subparagraph 
                        shall ensure, during the 5-year period 
                        beginning on the date of such increase, 
                        that--
                                  (I) the number of full-time 
                                equivalent primary care 
                                residents, as defined in 
                                paragraph (5)(H) (as determined 
                                by the Secretary), excluding 
                                any additional positions under 
                                subclause (II), is not less 
                                than the average number of 
                                full-time equivalent primary 
                                care residents (as so 
                                determined) during the 3 most 
                                recent cost reporting periods 
                                ending prior to the date of 
                                enactment of this paragraph; 
                                and
                                  (II) not less than 75 percent 
                                of the positions attributable 
                                to such increase are in a 
                                primary care or general surgery 
                                residency (as determined by the 
                                Secretary).
                        The Secretary may determine whether a 
                        hospital has met the requirements under 
                        this clause during such 5-year period 
                        in such manner and at such time as the 
                        Secretary determines appropriate, 
                        including at the end of such 5-year 
                        period.
                          (iii) Redistribution of positions if 
                        hospital no longer meets certain 
                        requirements.--In the case where the 
                        Secretary determines that a hospital 
                        described in clause (ii) does not meet 
                        either of the requirements under 
                        subclause (I) or (II) of such clause, 
                        the Secretary shall--
                                  (I) reduce the otherwise 
                                applicable resident limit of 
                                the hospital by the amount by 
                                which such limit was increased 
                                under this paragraph; and
                                  (II) provide for the 
                                distribution of positions 
                                attributable to such reduction 
                                in accordance with the 
                                requirements of this paragraph.
                  (C) Considerations in redistribution.--In 
                determining for which hospitals the increase in 
                the otherwise applicable resident limit is 
                provided under subparagraph (B), the Secretary 
                shall take into account--
                          (i) the demonstration likelihood of 
                        the hospital filling the positions made 
                        available under this paragraph within 
                        the first 3 cost reporting periods 
                        beginning on or after July 1, 2011, as 
                        determined by the Secretary; and
                          (ii) whether the hospital has an 
                        accredited rural training track (as 
                        described in paragraph (4)(H)(iv)).
                  (D) Priority for certain areas.--In 
                determining for which hospitals the increase in 
                the otherwise applicable resident limit is 
                provided under subparagraph (B), subject to 
                subparagraph (E), the Secretary shall 
                distribute the increase to hospitals based on 
                the following factors:
                          (i) Whether the hospital is located 
                        in a State with a resident-to-
                        population ratio in the lowest quartile 
                        (as determined by the Secretary).
                          (ii) Whether the hospital is located 
                        in a State, a territory of the United 
                        States, or the District of Columbia 
                        that is among the top 10 States, 
                        territories, or Districts in terms of 
                        the ratio of--
                                  (I) the total population of 
                                the State, territory, or 
                                District living in an area 
                                designated (under such section 
                                332(a)(1)(A)) as a health 
                                professional shortage area (as 
                                of the date of enactment of 
                                this paragraph); to
                                  (II) the total population of 
                                the State, territory, or 
                                District (as determined by the 
                                Secretary based on the most 
                                recent available population 
                                data published by the Bureau of 
                                the Census).
                          (iii) Whether the hospital is located 
                        in a rural area (as defined in 
                        subsection (d)(2)(D)(ii)).
                  (E) Reservation of positions for certain 
                hospitals.--
                          (i) In general.--Subject to clause 
                        (ii), the Secretary shall reserve the 
                        positions available for distribution 
                        under this paragraph as follows:
                                  (I) 70 percent of such 
                                positions for distribution to 
                                hospitals described in clause 
                                (i) of subparagraph (D).
                                  (II) 30 percent of such 
                                positions for distribution to 
                                hospitals described in clause 
                                (ii) and (iii) of such 
                                subparagraph.
                          (ii) Exception if positions not 
                        redistributed by july 1, 2011.--In the 
                        case where the Secretary does not 
                        distribute positions to hospitals in 
                        accordance with clause (i) by July 1, 
                        2011, the Secretary shall distribute 
                        such positions to other hospitals in 
                        accordance with the considerations 
                        described in subparagraph (C) and the 
                        priority described in subparagraph (D).
                  (F) Limitation.--A hospital may not receive 
                more than 75 full-time equivalent additional 
                residency positions under this paragraph.
                  (G) Application of per resident amounts for 
                primary care and nonprimary care.--With respect 
                to additional residency positions in a hospital 
                attributable to the increase provided under 
                this paragraph, the approved FTE per resident 
                amounts are deemed to be equal to the hospital 
                per resident amounts for primary care and 
                nonprimary care computed under paragraph (2)(D) 
                for that hospital.
                  (H) Definitions.--In this paragraph:
                          (i) Reference resident level.--The 
                        term ``reference resident level'' 
                        means, with respect to a hospital, the 
                        highest resident level for any of the 3 
                        most recent cost reporting periods 
                        (ending before the date of the 
                        enactment of this paragraph) of the 
                        hospital for which a cost report has 
                        been settled (or, if not, submitted 
                        (subject to audit)), as determined by 
                        the Secretary.
                          (ii) Resident level.--The term 
                        ``resident level'' has the meaning 
                        given such term in paragraph (7)(C)(i).
                          (iii) Otherwise applicable resident 
                        limit.--The term ``otherwise applicable 
                        resident limit'' means, with respect to 
                        a hospital, the limit otherwise 
                        applicable under subparagraphs (F)(i) 
                        and (H) of paragraph (4) on the 
                        resident level for the hospital 
                        determined without regard to this 
                        paragraph but taking into account 
                        paragraph (7)(A).
                  (I) Affiliation.--The provisions of this 
                paragraph shall be applied to hospitals which 
                are members of the same affiliated group (as 
                defined by the Secretary under paragraph 
                (4)(H)(ii)) and the reference resident level 
                for each such hospital shall be the reference 
                resident level with respect to the cost 
                reporting period that results in the smallest 
                difference between the reference resident level 
                and the otherwise applicable resident limit.
  (i) Avoiding Duplicative Payments to Hospitals Participating 
in Rural Demonstration Programs.--The Secretary shall reduce 
any payment amounts otherwise determined under this section to 
the extent necessary to avoid duplication of any payment made 
under section 4005(e) of the Omnibus Budget Reconciliation Act 
of 1987.
  (j) Prospective Payment for Inpatient Rehabilitation 
Services.--
          (1) Payment during transition period.--
                  (A) In general.--Notwithstanding section 
                1814(b), but subject to the provisions of 
                section 1813, the amount of the payment with 
                respect to the operating and capital costs of 
                inpatient hospital services of a rehabilitation 
                hospital or a rehabilitation unit (in this 
                subsection referred to as a ``rehabilitation 
                facility''), other than a facility making an 
                election under subparagraph (F) in a cost 
                reporting period beginning on or after October 
                1, 2000, and before October 1, 2002, is equal 
                to the sum of--
                          (i) the TEFRA percentage (as defined 
                        in subparagraph (C)) of the amount that 
                        would have been paid under part A with 
                        respect to such costs if this 
                        subsection did not apply, and
                          (ii) the prospective payment 
                        percentage (as defined in subparagraph 
                        (C)) of the product of (I) the per unit 
                        payment rate established under this 
                        subsection for the fiscal year in which 
                        the payment unit of service occurs, and 
                        (II) the number of such payment units 
                        occurring in the cost reporting period.
                  (B) Fully implemented system.--
                Notwithstanding section 1814(b), but subject to 
                the provisions of section 1813, the amount of 
                the payment with respect to the operating and 
                capital costs of inpatient hospital services of 
                a rehabilitation facility for a payment unit in 
                a cost reporting period beginning on or after 
                October 1, 2002, or, in the case of a facility 
                making an election under subparagraph (F), for 
                any cost reporting period described in such 
                subparagraph, is equal to the per unit payment 
                rate established under this subsection for the 
                fiscal year in which the payment unit of 
                service occurs.
                  (C) TEFRA and prospective payment percentages 
                specified.--For purposes of subparagraph (A), 
                for a cost reporting period beginning--
                          (i) on or after October 1, 2000, and 
                        before October 1, 2001, the ``TEFRA 
                        percentage'' is 66\2/3\ percent and the 
                        ``prospective payment percentage'' is 
                        33\1/3\ percent; and
                          (ii) on or after October 1, 2001, and 
                        before October 1, 2002, the ``TEFRA 
                        percentage'' is 33\1/3\ percent and the 
                        ``prospective payment percentage'' is 
                        66\2/3\ percent.
                  (D) Payment unit.--For purposes of this 
                subsection, the term ``payment unit'' means a 
                discharge.
                  (E) Construction relating to transfer 
                authority.--Nothing in this subsection shall be 
                construed as preventing the Secretary from 
                providing for an adjustment to payments to take 
                into account the early transfer of a patient 
                from a rehabilitation facility to another site 
                of care.
                  (F) Election to apply full prospective 
                payment system.--A rehabilitation facility may 
                elect, not later than 30 days before its first 
                cost reporting period for which the payment 
                methodology under this subsection applies to 
                the facility, to have payment made to the 
                facility under this subsection under the 
                provisions of subparagraph (B) (rather than 
                subparagraph (A)) for each cost reporting 
                period to which such payment methodology 
                applies.
          (2) Patient case mix groups.--
                  (A) Establishment.--The Secretary shall 
                establish--
                          (i) classes of patient discharges of 
                        rehabilitation facilities by 
                        functional-related groups (each in this 
                        subsection referred to as a ``case mix 
                        group''), based on impairment, age, 
                        comorbidities, and functional 
                        capability of the patient and such 
                        other factors as the Secretary deems 
                        appropriate to improve the explanatory 
                        power of functional independence 
                        measure-function related groups; and
                          (ii) a method of classifying specific 
                        patients in rehabilitation facilities 
                        within these groups.
                  (B) Weighting factors.--For each case mix 
                group the Secretary shall assign an appropriate 
                weighting which reflects the relative facility 
                resources used with respect to patients 
                classified within that group compared to 
                patients classified within other groups.
                  (C) Adjustments for case mix.--
                          (i) In general.--The Secretary shall 
                        from time to time adjust the 
                        classifications and weighting factors 
                        established under this paragraph as 
                        appropriate to reflect changes in 
                        treatment patterns, technology, case 
                        mix, number of payment units for which 
                        payment is made under this title, and 
                        other factors which may affect the 
                        relative use of resources. Such 
                        adjustments shall be made in a manner 
                        so that changes in aggregate payments 
                        under the classification system are a 
                        result of real changes and are not a 
                        result of changes in coding that are 
                        unrelated to real changes in case mix.
                          (ii) Adjustment.--Insofar as the 
                        Secretary determines that such 
                        adjustments for a previous fiscal year 
                        (or estimates that such adjustments for 
                        a future fiscal year) did (or are 
                        likely to) result in a change in 
                        aggregate payments under the 
                        classification system during the fiscal 
                        year that are a result of changes in 
                        the coding or classification of 
                        patients that do not reflect real 
                        changes in case mix, the Secretary 
                        shall adjust the per payment unit 
                        payment rate for subsequent years so as 
                        to eliminate the effect of such coding 
                        or classification changes.
                  (D) Data collection.--The Secretary is 
                authorized to require rehabilitation facilities 
                that provide inpatient hospital services to 
                submit such data as the Secretary deems 
                necessary to establish and administer the 
                prospective payment system under this 
                subsection.
          (3) Payment rate.--
                  (A) In general.--The Secretary shall 
                determine a prospective payment rate for each 
                payment unit for which such rehabilitation 
                facility is entitled to receive payment under 
                this title. Subject to subparagraph (B), such 
                rate for payment units occurring during a 
                fiscal year shall be based on the average 
                payment per payment unit under this title for 
                inpatient operating and capital costs of 
                rehabilitation facilities using the most recent 
                data available (as estimated by the Secretary 
                as of the date of establishment of the system) 
                adjusted--
                          (i) by updating such per-payment-unit 
                        amount to the fiscal year involved by 
                        the weighted average of the applicable 
                        percentage increases provided under 
                        subsection (b)(3)(B)(ii) (for cost 
                        reporting periods beginning during the 
                        fiscal year) covering the period from 
                        the midpoint of the period for such 
                        data through the midpoint of fiscal 
                        year 2000 and by an increase factor 
                        (described in subparagraph (C)) 
                        specified by the Secretary for 
                        subsequent fiscal years up to the 
                        fiscal year involved;
                          (ii) by reducing such rates by a 
                        factor equal to the proportion of 
                        payments under this subsection (as 
                        estimated by the Secretary) based on 
                        prospective payment amounts which are 
                        additional payments described in 
                        paragraph (4) (relating to outlier and 
                        related payments);
                          (iii) for variations among 
                        rehabilitation facilities by area under 
                        paragraph (6);
                          (iv) by the weighting factors 
                        established under paragraph (2)(B); and
                          (v) by such other factors as the 
                        Secretary determines are necessary to 
                        properly reflect variations in 
                        necessary costs of treatment among 
                        rehabilitation facilities.
                  (B) Budget neutral rates.--The Secretary 
                shall establish the prospective payment amounts 
                under this subsection for payment units during 
                fiscal years 2001 and 2002 at levels such that, 
                in the Secretary's estimation, the amount of 
                total payments under this subsection for such 
                fiscal years (including any payment adjustments 
                pursuant to paragraphs (4) and (6) but not 
                taking into account any payment adjustment 
                resulting from an election permitted under 
                paragraph (1)(F)) shall be equal to 98 percent 
                for fiscal year 2001 and 100 percent for fiscal 
                year 2002 of the amount of payments that would 
                have been made under this title during the 
                fiscal years for operating and capital costs of 
                rehabilitation facilities had this subsection 
                not been enacted. In establishing such payment 
                amounts, the Secretary shall consider the 
                effects of the prospective payment system 
                established under this subsection on the total 
                number of payment units from rehabilitation 
                facilities and other factors described in 
                subparagraph (A).
                  (C) Increase factor.--
                          (i) In general.--For purposes of this 
                        subsection for payment units in each 
                        fiscal year (beginning with fiscal year 
                        2001), the Secretary shall establish an 
                        increase factor subject to clauses (ii) 
                        and (iii). Such factor shall be based 
                        on an appropriate percentage increase 
                        in a market basket of goods and 
                        services comprising services for which 
                        payment is made under this subsection, 
                        which may be the market basket 
                        percentage increase described in 
                        subsection (b)(3)(B)(iii). The increase 
                        factor to be applied under this 
                        subparagraph for each of fiscal years 
                        2008 and 2009 shall be 0 percent.
                          (ii) Productivity and other 
                        adjustment.--Subject to clause (iii), 
                        after establishing the increase factor 
                        described in clause (i) for a fiscal 
                        year, the Secretary shall reduce such 
                        increase factor--
                                  (I) for fiscal year 2012 and 
                                each subsequent fiscal year, by 
                                the productivity adjustment 
                                described in section 
                                1886(b)(3)(B)(xi)(II); and
                                  (II) for each of fiscal years 
                                2010 through 2019, by the other 
                                adjustment described in 
                                subparagraph (D).
                        The application of this clause may 
                        result in the increase factor under 
                        this subparagraph being less than 0.0 
                        for a fiscal year, and may result in 
                        payment rates under this subsection for 
                        a fiscal year being less than such 
                        payment rates for the preceding fiscal 
                        year.
                          (iii) Special rule for fiscal year 
                        2018.--The increase factor to be 
                        applied under this subparagraph for 
                        fiscal year 2018, after the application 
                        of clause (ii), shall be 1 percent.
                  (D) Other adjustment.--For purposes of 
                subparagraph (C)(ii)(II), the other adjustment 
                described in this subparagraph is--
                          (i) for each of fiscal years 2010 and 
                        2011, 0.25 percentage point;
                          (ii) for each of fiscal years 2012 
                        and 2013, 0.1 percentage point;
                          (iii) for fiscal year 2014, 0.3 
                        percentage point;
                          (iv) for each of fiscal years 2015 
                        and 2016, 0.2 percentage point; and
                          (v) for each of fiscal years 2017, 
                        2018, and 2019, 0.75 percentage point.
          (4) Outlier and special payments.--
                  (A) Outliers.--
                          (i) In general.--The Secretary may 
                        provide for an additional payment to a 
                        rehabilitation facility for patients in 
                        a case mix group, based upon the 
                        patient being classified as an outlier 
                        based on an unusual length of stay, 
                        costs, or other factors specified by 
                        the Secretary.
                          (ii) Payment based on marginal cost 
                        of care.--The amount of such additional 
                        payment under clause (i) shall be 
                        determined by the Secretary and shall 
                        approximate the marginal cost of care 
                        beyond the cutoff point applicable 
                        under clause (i).
                          (iii) Total payments.--The total 
                        amount of the additional payments made 
                        under this subparagraph for payment 
                        units in a fiscal year may not exceed 5 
                        percent of the total payments projected 
                        or estimated to be made based on 
                        prospective payment rates for payment 
                        units in that year.
                  (B) Adjustment.--The Secretary may provide 
                for such adjustments to the payment amounts 
                under this subsection as the Secretary deems 
                appropriate to take into account the unique 
                circumstances of rehabilitation facilities 
                located in Alaska and Hawaii.
          (5) Publication.--The Secretary shall provide for 
        publication in the Federal Register, on or before 
        August 1 before each fiscal year (beginning with fiscal 
        year 2001), of the classification and weighting factors 
        for case mix groups under paragraph (2) for such fiscal 
        year and a description of the methodology and data used 
        in computing the prospective payment rates under this 
        subsection for that fiscal year.
          (6) Area wage adjustment.--The Secretary shall adjust 
        the proportion (as estimated by the Secretary from time 
        to time) of rehabilitation facilities' costs which are 
        attributable to wages and wage-related costs, of the 
        prospective payment rates computed under paragraph (3) 
        for area differences in wage levels by a factor 
        (established by the Secretary) reflecting the relative 
        hospital wage level in the geographic area of the 
        rehabilitation facility compared to the national 
        average wage level for such facilities. Not later than 
        October 1, 2001 (and at least every 36 months 
        thereafter), the Secretary shall update the factor 
        under the preceding sentence on the basis of 
        information available to the Secretary (and updated as 
        appropriate) of the wages and wage-related costs 
        incurred in furnishing rehabilitation services. Any 
        adjustments or updates made under this paragraph for a 
        fiscal year shall be made in a manner that assures that 
        the aggregated payments under this subsection in the 
        fiscal year are not greater or less than those that 
        would have been made in the year without such 
        adjustment.
          (7) Quality reporting.--
                  (A) Reduction in update for failure to 
                report.--
                          (i) In general.--For purposes of 
                        fiscal year 2014 and each subsequent 
                        fiscal year, in the case of a 
                        rehabilitation facility that does not 
                        submit data to the Secretary in 
                        accordance with subparagraphs (C) and 
                        (F) with respect to such a fiscal year, 
                        after determining the increase factor 
                        described in paragraph (3)(C), and 
                        after application of subparagraphs 
                        (C)(iii) and (D) of paragraph (3), the 
                        Secretary shall reduce such increase 
                        factor for payments for discharges 
                        occurring during such fiscal year by 2 
                        percentage points.
                          (ii) Special rule.--The application 
                        of this subparagraph may result in the 
                        increase factor described in paragraph 
                        (3)(C) being less than 0.0 for a fiscal 
                        year, and may result in payment rates 
                        under this subsection for a fiscal year 
                        being less than such payment rates for 
                        the preceding fiscal year.
                  (B) Noncumulative application.--Any reduction 
                under subparagraph (A) shall apply only with 
                respect to the fiscal year involved and the 
                Secretary shall not take into account such 
                reduction in computing the payment amount under 
                this subsection for a subsequent fiscal year.
                  (C) Submission of quality data.--Subject to 
                subparagraph (G), for fiscal year 2014 and each 
                subsequent fiscal year, each rehabilitation 
                facility shall submit to the Secretary data on 
                quality measures specified under subparagraph 
                (D). Such data shall be submitted in a form and 
                manner, and at a time, specified by the 
                Secretary for purposes of this subparagraph.
                  (D) Quality measures.--
                          (i) In general.--Subject to clause 
                        (ii), any measure specified by the 
                        Secretary under this subparagraph must 
                        have been endorsed by the entity with a 
                        contract under section 1890(a).
                          (ii) Exception.--In the case of a 
                        specified area or medical topic 
                        determined appropriate by the Secretary 
                        for which a feasible and practical 
                        measure has not been endorsed by the 
                        entity with a contract under section 
                        1890(a), the Secretary may specify a 
                        measure that is not so endorsed as long 
                        as due consideration is given to 
                        measures that have been endorsed or 
                        adopted by a consensus organization 
                        identified by the Secretary.
                          (iii) Time frame.--Not later than 
                        October 1, 2012, the Secretary shall 
                        publish the measures selected under 
                        this subparagraph that will be 
                        applicable with respect to fiscal year 
                        2014.
                  (E) Public availability of data submitted.--
                The Secretary shall establish procedures for 
                making data submitted under subparagraph (C) 
                and subparagraph (F)(i) available to the 
                public. Such procedures shall ensure that a 
                rehabilitation facility has the opportunity to 
                review the data that is to be made public with 
                respect to the facility prior to such data 
                being made public. The Secretary shall report 
                quality measures that relate to services 
                furnished in inpatient settings in 
                rehabilitation facilities on the Internet 
                website of the Centers for Medicare & Medicaid 
                Services.
                  (F) Submission of additional data.--
                          (i) In general.--For the fiscal year 
                        beginning on the specified application 
                        date (as defined in subsection 
                        (a)(2)(E) of section 1899B), as 
                        applicable with respect to inpatient 
                        rehabilitation facilities and quality 
                        measures under subsection (c)(1) of 
                        such section and measures under 
                        subsection (d)(1) of such section, and 
                        each subsequent fiscal year, in 
                        addition to such data on the quality 
                        measures described in subparagraph (C), 
                        each rehabilitation facility shall 
                        submit to the Secretary data on the 
                        quality measures under such subsection 
                        (c)(1) and any necessary data specified 
                        by the Secretary under such subsection 
                        (d)(1).
                          (ii) Standardized patient assessment 
                        data.--For fiscal year 2019 and each 
                        subsequent fiscal year, in addition to 
                        such data described in clause (i), each 
                        rehabilitation facility shall submit to 
                        the Secretary standardized patient 
                        assessment data required under 
                        subsection (b)(1) of section 1899B.
                          (iii) Submission.--Such data shall be 
                        submitted in the form and manner, and 
                        at the time, specified by the Secretary 
                        for purposes of this subparagraph.
                  (G) Non-duplication.--To the extent data 
                submitted under subparagraph (F) duplicates 
                other data required to be submitted under 
                subparagraph (C), the submission of such data 
                under subparagraph (F) shall be in lieu of the 
                submission of such data under subparagraph (C). 
                The previous sentence shall not apply insofar 
                as the Secretary determines it is necessary to 
                avoid a delay in the implementation of section 
                1899B, taking into account the different 
                specified application dates under subsection 
                (a)(2)(E) of such section.
          (8) Limitation on review.--There shall be no 
        administrative or judicial review under section 1869, 
        1878, or otherwise of the establishment of--
                  (A) case mix groups, of the methodology for 
                the classification of patients within such 
                groups, and of the appropriate weighting 
                factors thereof under paragraph (2),
                  (B) the prospective payment rates under 
                paragraph (3),
                  (C) outlier and special payments under 
                paragraph (4), and
                  (D) area wage adjustments under paragraph 
                (6).
  (k) Payment to Nonhospital Providers.--
          (1) In general.--For cost reporting periods beginning 
        on or after October 1, 1997, the Secretary may 
        establish rules for payment to qualified nonhospital 
        providers for their direct costs of medical education, 
        if those costs are incurred in the operation of an 
        approved medical residency training program described 
        in subsection (h). Such rules shall specify the 
        amounts, form, and manner in which such payments will 
        be made and the portion of such payments that will be 
        made from each of the trust funds under this title.
          (2) Qualified nonhospital providers.--For purposes of 
        this subsection, the term ``qualified nonhospital 
        providers'' means--
                  (A) a Federally qualified health center, as 
                defined in section 1861(aa)(4);
                  (B) a rural health clinic, as defined in 
                section 1861(aa)(2);
                  (C) Medicare+Choice organizations; and
                  (D) such other providers (other than 
                hospitals) as the Secretary determines to be 
                appropriate.
  (l) Payment for Nursing and Allied Health Education for 
Managed Care Enrollees.--
          (1) In general.--For portions of cost reporting 
        periods occurring in a year (beginning with 2000), the 
        Secretary shall provide for an additional payment 
        amount for any hospital that receives payments for the 
        costs of approved educational activities for nurse and 
        allied health professional training under section 
        1861(v)(1).
          (2) Payment amount.--The additional payment amount 
        under this subsection for each hospital for portions of 
        cost reporting periods occurring in a year shall be an 
        amount specified by the Secretary in a manner 
        consistent with the following:
                  (A) Determination of managed care enrollee 
                payment ratio for graduate medical education 
                payments.--The Secretary shall estimate the 
                ratio of payments for all hospitals for 
                portions of cost reporting periods occurring in 
                the year under subsection (h)(3)(D) to total 
                direct graduate medical education payments 
                estimated for such portions of periods under 
                subsection (h)(3).
                  (B) Application to fee-for-service nursing 
                and allied health education payments.--Such 
                ratio shall be applied to the Secretary's 
                estimate of total payments for nursing and 
                allied health education determined under 
                section 1861(v) for portions of cost reporting 
                periods occurring in the year to determine a 
                total amount of additional payments for nursing 
                and allied health education to be distributed 
                to hospitals under this subsection for portions 
                of cost reporting periods occurring in the 
                year; except that in no case shall such total 
                amount exceed $60,000,000 in any year.
                  (C) Application to hospital.--The amount of 
                payment under this subsection to a hospital for 
                portions of cost reporting periods occurring in 
                a year is equal to the total amount of payments 
                determined under subparagraph (B) for the year 
                multiplied by the ratio of--
                          (i) the product of (I) the 
                        Secretary's estimate of the ratio of 
                        the amount of payments made under 
                        section 1861(v) to the hospital for 
                        nursing and allied health education 
                        activities for the hospital's cost 
                        reporting period ending in the second 
                        preceding fiscal year, to the 
                        hospital's total inpatient days for 
                        such period, and (II) the total number 
                        of inpatient days (as established by 
                        the Secretary) for such period which 
                        are attributable to services furnished 
                        to individuals who are enrolled under a 
                        risk sharing contract with an eligible 
                        organization under section 1876 and who 
                        are entitled to benefits under part A 
                        or who are enrolled with a 
                        Medicare+Choice organization under part 
                        C; to
                          (ii) the sum of the products 
                        determined under clause (i) for such 
                        cost reporting periods.
  (m) Prospective Payment for Long-Term Care Hospitals.--
          (1) Reference to establishment and implementation of 
        system.--For provisions related to the establishment 
        and implementation of a prospective payment system for 
        payments under this title for inpatient hospital 
        services furnished by a long-term care hospital 
        described in subsection (d)(1)(B)(iv), see section 123 
        of the Medicare, Medicaid, and SCHIP Balanced Budget 
        Refinement Act of 1999 and section 307(b) of the 
        Medicare, Medicaid, and SCHIP Benefits Improvement and 
        Protection Act of 2000.
          (2) Update for rate year 2008.--In implementing the 
        system described in paragraph (1) for discharges 
        occurring during the rate year ending in 2008 for a 
        hospital, the base rate for such discharges for the 
        hospital shall be the same as the base rate for 
        discharges for the hospital occurring during the rate 
        year ending in 2007.
          (3) Implementation for rate year 2010 and subsequent 
        years.--
                  (A) In general.--Subject to subparagraph (C), 
                in implementing the system described in 
                paragraph (1) for rate year 2010 and each 
                subsequent rate year, any annual update to a 
                standard Federal rate for discharges for the 
                hospital during the rate year, shall be 
                reduced--
                          (i) for rate year 2012 and each 
                        subsequent rate year, by the 
                        productivity adjustment described in 
                        section 1886(b)(3)(B)(xi)(II); and
                          (ii) for each of rate years 2010 
                        through 2019, by the other adjustment 
                        described in paragraph (4).
                  (B) Special rule.--The application of this 
                paragraph may result in such annual update 
                being less than 0.0 for a rate year, and may 
                result in payment rates under the system 
                described in paragraph (1) for a rate year 
                being less than such payment rates for the 
                preceding rate year.
                  (C) Additional special rule.--For fiscal year 
                2018, the annual update under subparagraph (A) 
                for the fiscal year, after application of 
                clauses (i) and (ii) of subparagraph (A), shall 
                be 1 percent.
          (4) Other adjustment.--For purposes of paragraph 
        (3)(A)(ii), the other adjustment described in this 
        paragraph is--
                  (A) for rate year 2010, 0.25 percentage 
                point;
                  (B) for rate year 2011, 0.50 percentage 
                point;
                  (C) for each of the rate years beginning in 
                2012 and 2013, 0.1 percentage point;
                  (D) for rate year 2014, 0.3 percentage point;
                  (E) for each of rate years 2015 and 2016, 0.2 
                percentage point; and
                  (F) for each of rate years 2017, 2018, and 
                2019, 0.75 percentage point.
          (5) Quality reporting.--
                  (A) Reduction in update for failure to 
                report.--
                          (i) In general.--Under the system 
                        described in paragraph (1), for rate 
                        year 2014 and each subsequent rate 
                        year, in the case of a long-term care 
                        hospital that does not submit data to 
                        the Secretary in accordance with 
                        subparagraphs (C) and (F) with respect 
                        to such a rate year, any annual update 
                        to a standard Federal rate for 
                        discharges for the hospital during the 
                        rate year, and after application of 
                        paragraph (3), shall be reduced by 2 
                        percentage points.
                          (ii) Special rule.--The application 
                        of this subparagraph may result in such 
                        annual update being less than 0.0 for a 
                        rate year, and may result in payment 
                        rates under the system described in 
                        paragraph (1) for a rate year being 
                        less than such payment rates for the 
                        preceding rate year.
                  (B) Noncumulative application.--Any reduction 
                under subparagraph (A) shall apply only with 
                respect to the rate year involved and the 
                Secretary shall not take into account such 
                reduction in computing the payment amount under 
                the system described in paragraph (1) for a 
                subsequent rate year.
                  (C) Submission of quality data.--Subject to 
                subparagraph (G), for rate year 2014 and each 
                subsequent rate year, each long-term care 
                hospital shall submit to the Secretary data on 
                quality measures specified under subparagraph 
                (D). Such data shall be submitted in a form and 
                manner, and at a time, specified by the 
                Secretary for purposes of this subparagraph.
                  (D) Quality measures.--
                          (i) In general.--Subject to clause 
                        (ii), any measure specified by the 
                        Secretary under this subparagraph must 
                        have been endorsed by the entity with a 
                        contract under section 1890(a).
                          (ii) Exception.--In the case of a 
                        specified area or medical topic 
                        determined appropriate by the Secretary 
                        for which a feasible and practical 
                        measure has not been endorsed by the 
                        entity with a contract under section 
                        1890(a), the Secretary may specify a 
                        measure that is not so endorsed as long 
                        as due consideration is given to 
                        measures that have been endorsed or 
                        adopted by a consensus organization 
                        identified by the Secretary.
                          (iii) Time frame.--Not later than 
                        October 1, 2012, the Secretary shall 
                        publish the measures selected under 
                        this subparagraph that will be 
                        applicable with respect to rate year 
                        2014.
                          (iv) Additional quality measures.--
                        Not later than October 1, 2015, the 
                        Secretary shall establish a functional 
                        status quality measure for change in 
                        mobility among inpatients requiring 
                        ventilator support.
                  (E) Public availability of data submitted.--
                The Secretary shall establish procedures for 
                making data submitted under subparagraph (C) 
                and subparagraph (F)(i) available to the 
                public. Such procedures shall ensure that a 
                long-term care hospital has the opportunity to 
                review the data that is to be made public with 
                respect to the hospital prior to such data 
                being made public. The Secretary shall report 
                quality measures that relate to services 
                furnished in inpatient settings in long-term 
                care hospitals on the Internet website of the 
                Centers for Medicare & Medicaid Services.
                  (F) Submission of additional data.--
                          (i) In general.--For the rate year 
                        beginning on the specified application 
                        date (as defined in subsection 
                        (a)(2)(E) of section 1899B), as 
                        applicable with respect to long-term 
                        care hospitals and quality measures 
                        under subsection (c)(1) of such section 
                        and measures under subsection (d)(1) of 
                        such section, and each subsequent rate 
                        year, in addition to the data on the 
                        quality measures described in 
                        subparagraph (C), each long-term care 
                        hospital (other than a hospital 
                        classified under subsection 
                        (d)(1)(B)(vi)) shall submit to the 
                        Secretary data on the quality measures 
                        under such subsection (c)(1) and any 
                        necessary data specified by the 
                        Secretary under such subsection (d)(1).
                          (ii) Standardized patient assessment 
                        data.--For rate year 2019 and each 
                        subsequent rate year, in addition to 
                        such data described in clause (i), each 
                        long-term care hospital (other than a 
                        hospital classified under subsection 
                        (d)(1)(B)(vi)) shall submit to the 
                        Secretary standardized patient 
                        assessment data required under 
                        subsection (b)(1) of section 1899B.
                          (iii) Submission.--Such data shall be 
                        submitted in the form and manner, and 
                        at the time, specified by the Secretary 
                        for purposes of this subparagraph.
                  (G) Non-duplication.--To the extent data 
                submitted under subparagraph (F) duplicates 
                other data required to be submitted under 
                subparagraph (C), the submission of such data 
                under subparagraph (F) shall be in lieu of the 
                submission of such data under subparagraph (C). 
                The previous sentence shall not apply insofar 
                as the Secretary determines it is necessary to 
                avoid a delay in the implementation of section 
                1899B, taking into account the different 
                specified application dates under subsection 
                (a)(2)(E) of such section.
          (6) Application of site neutral ipps payment rate in 
        certain cases.--
                  (A) General application of site neutral ipps 
                payment amount for discharges failing to meet 
                applicable criteria.--
                          (i) In general.--For a discharge in 
                        cost reporting periods beginning on or 
                        after October 1, 2015, except as 
                        provided in clause (ii) and 
                        subparagraphs (C), (E), (F), and (G), 
                        payment under this title to a long-term 
                        care hospital for inpatient hospital 
                        services shall be made at the 
                        applicable site neutral payment rate 
                        (as defined in subparagraph (B)).
                          (ii) Exception for certain discharges 
                        meeting criteria.--Clause (i) shall not 
                        apply (and payment shall be made to a 
                        long-term care hospital without regard 
                        to this paragraph) for a discharge if--
                                  (I) the discharge meets the 
                                ICU criterion under clause 
                                (iii) or the ventilator 
                                criterion under clause (iv); 
                                and
                                  (II) the discharge does not 
                                have a principal diagnosis 
                                relating to a psychiatric 
                                diagnosis or to rehabilitation.
                          (iii) Intensive care unit (icu) 
                        criterion.--
                                  (I) In general.--The 
                                criterion specified in this 
                                clause (in this paragraph 
                                referred to as the ``ICU 
                                criterion''), for a discharge 
                                from a long-term care hospital, 
                                is that the stay in the long-
                                term care hospital ending with 
                                such discharge was immediately 
                                preceded by a discharge from a 
                                stay in a subsection (d) 
                                hospital that included at least 
                                3 days in an intensive care 
                                unit (ICU), as determined by 
                                the Secretary.
                                  (II) Determining icu days.--
                                In determining intensive care 
                                unit days under subclause (I), 
                                the Secretary shall use data 
                                from revenue center codes 020x 
                                or 021x (or such successor 
                                codes as the Secretary may 
                                establish).
                          (iv) Ventilator criterion.--The 
                        criterion specified in this clause (in 
                        this paragraph referred to as the 
                        ``ventilator criterion''), for a 
                        discharge from a long-term care 
                        hospital, is that--
                                  (I) the stay in the long-term 
                                care hospital ending with such 
                                discharge was immediately 
                                preceded by a discharge from a 
                                stay in a subsection (d) 
                                hospital; and
                                  (II) the individual 
                                discharged was assigned to a 
                                Medicare-Severity-Long-Term-
                                Care-Diagnosis-Related-Group 
                                (MS-LTC-DRG) based on the 
                                receipt of ventilator services 
                                of at least 96 hours.
                  (B) Applicable site neutral payment rate 
                defined.--
                          (i) In general.--In this paragraph, 
                        the term ``applicable site neutral 
                        payment rate'' means--
                                  (I) for discharges in cost 
                                reporting periods beginning 
                                during fiscal year 2016 or 
                                fiscal year 2017, the blended 
                                payment rate specified in 
                                clause (iii); and
                                  (II) for discharges in cost 
                                reporting periods beginning 
                                during fiscal year 2018 or a 
                                subsequent fiscal year, the 
                                site neutral payment rate (as 
                                defined in clause (ii)).
                          (ii) Site neutral payment rate 
                        defined.--In this paragraph, the term 
                        ``site neutral payment rate'' means the 
                        lower of--
                                  (I) the IPPS comparable per 
                                diem amount determined under 
                                paragraph (d)(4) of section 
                                412.529 of title 42, Code of 
                                Federal Regulations, including 
                                any applicable outlier payments 
                                under section 412.525 of such 
                                title; or
                                  (II) 100 percent of the 
                                estimated cost for the services 
                                involved.
                          (iii) Blended payment rate.--The 
                        blended payment rate specified in this 
                        clause, for a long-term care hospital 
                        for inpatient hospital services for a 
                        discharge, is comprised of--
                                  (I) half of the site neutral 
                                payment rate (as defined in 
                                clause (ii)) for the discharge; 
                                and
                                  (II) half of the payment rate 
                                that would otherwise be 
                                applicable to such discharge 
                                without regard to this 
                                paragraph, as determined by the 
                                Secretary.
                  (C) Limiting payment for all hospital 
                discharges to site neutral payment rate for 
                hospitals failing to meet applicable ltch 
                discharge thresholds.--
                          (i) Notice of ltch discharge payment 
                        percentage.--For cost reporting periods 
                        beginning during or after fiscal year 
                        2016, the Secretary shall inform each 
                        long-term care hospital of its LTCH 
                        discharge payment percentage (as 
                        defined in clause (iv)) for such 
                        period.
                          (ii) Limitation.--For cost reporting 
                        periods beginning during or after 
                        fiscal year 2020, if the Secretary 
                        determines for a long-term care 
                        hospital that its LTCH discharge 
                        payment percentage for the period is 
                        not at least 50 percent--
                                  (I) the Secretary shall 
                                inform the hospital of such 
                                fact; and
                                  (II) subject to clause (iii), 
                                for all discharges in the 
                                hospital in each succeeding 
                                cost reporting period, the 
                                payment amount under this 
                                subsection shall be the payment 
                                amount that would apply under 
                                subsection (d) for the 
                                discharge if the hospital were 
                                a subsection (d) hospital.
                          (iii) Process for reinstatement.--The 
                        Secretary shall establish a process 
                        whereby a long-term care hospital may 
                        seek to and have the provisions of 
                        subclause (II) of clause (ii) 
                        discontinued with respect to that 
                        hospital.
                          (iv) LTCH discharge payment 
                        percentage.--In this subparagraph, the 
                        term ``LTCH discharge payment 
                        percentage'' means, with respect to a 
                        long-term care hospital for a cost 
                        reporting period beginning during or 
                        after fiscal year 2020, the ratio 
                        (expressed as a percentage) of--
                                  (I) the number of Medicare 
                                fee-for-service discharges for 
                                such hospital and period for 
                                which payment is not made at 
                                the site neutral payment rate, 
                                to
                                  (II) the total number of 
                                Medicare fee-for-service 
                                discharges for such hospital 
                                and period.
                  (D) Inclusion of subsection (d) puerto rico 
                hospitals.--In this paragraph, any reference in 
                this paragraph to a subsection (d) hospital 
                shall be deemed to include a reference to a 
                subsection (d) Puerto Rico hospital.
                  (E) Temporary exception for certain severe 
                wound discharges from certain long-term care 
                hospitals.--
                          (i) In general.--In the case of a 
                        discharge occurring prior to January 1, 
                        2017, subparagraph (A)(i) shall not 
                        apply (and payment shall be made to a 
                        long-term care hospital without regard 
                        to this paragraph) if such discharge--
                                  (I) is from a long-term care 
                                hospital that is--
                                          (aa) identified by 
                                        the last sentence of 
                                        subsection (d)(1)(B); 
                                        and
                                          (bb) located in a 
                                        rural area (as defined 
                                        in subsection 
                                        (d)(2)(D)) or treated 
                                        as being so located 
                                        pursuant to subsection 
                                        (d)(8)(E); and
                                  (II) the individual 
                                discharged has a severe wound.
                          (ii) Severe wound defined.--In this 
                        subparagraph, the term ``severe wound'' 
                        means a stage 3 wound, stage 4 wound, 
                        unstageable wound, non-healing surgical 
                        wound, infected wound, fistula, 
                        osteomyelitis, or wound with morbid 
                        obesity, as identified in the claim 
                        from the long-term care hospital.
                  (F) Temporary exception for certain spinal 
                cord specialty hospitals.--For discharges in 
                cost reporting periods beginning during fiscal 
                years 2018 and 2019, subparagraph (A)(i) shall 
                not apply (and payment shall be made to a long-
                term care hospital without regard to this 
                paragraph) if such discharge is from a long-
                term care hospital that meets each of the 
                following requirements:
                          (i) Not-for-profit.--The long-term 
                        care hospital was a not-for-profit 
                        long-term care hospital on June 1, 
                        2014, as determined by cost report 
                        data.
                          (ii) Primarily providing treatment 
                        for catastrophic spinal cord or 
                        acquired brain injuries or other 
                        paralyzing neuromuscular conditions.--
                        Of the discharges in calendar year 2013 
                        from the long-term care hospital for 
                        which payment was made under this 
                        section, at least 50 percent were 
                        classified under MS-LTCH-DRGs 28, 29, 
                        52, 57, 551, 573, and 963.
                          (iii) Significant out-of-state 
                        admissions.--
                                  (I) In general.--The long-
                                term care hospital discharged 
                                inpatients (including both 
                                individuals entitled to, or 
                                enrolled for, benefits under 
                                this title and individuals not 
                                so entitled or enrolled) during 
                                fiscal year 2014 who had been 
                                admitted from at least 20 of 
                                the 50 States, determined by 
                                the States of residency of such 
                                inpatients and based on such 
                                data submitted by the hospital 
                                to the Secretary as the 
                                Secretary may require.
                                  (II) Implementation.--
                                Notwithstanding any other 
                                provision of law, the Secretary 
                                may implement subclause (I) by 
                                program instruction or 
                                otherwise.
                                  (III) Non-application of 
                                paperwork reduction act.--
                                Chapter 35 of title 44, United 
                                States Code, shall not apply to 
                                data collected under this 
                                clause.
                  (G) Additional temporary exception for 
                certain severe wound discharges from certain 
                long-term care hospitals.--
                          (i) In general.--For a discharge 
                        occurring in a cost reporting period 
                        beginning during fiscal year 2018, 
                        subparagraph (A)(i) shall not apply 
                        (and payment shall be made to a long-
                        term care hospital without regard to 
                        this paragraph) if such discharge--
                                  (I) is from a long-term care 
                                hospital identified by the last 
                                sentence of subsection 
                                (d)(1)(B);
                                  (II) is classified under MS-
                                LTCH-DRG 602, 603, 539, or 540; 
                                and
                                  (III) is with respect to an 
                                individual treated by a long-
                                term care hospital for a severe 
                                wound.
                          (ii) Severe wound defined.--In this 
                        subparagraph, the term ``severe wound'' 
                        means a wound which is a stage 3 wound, 
                        stage 4 wound, unstageable wound, non-
                        healing surgical wound, or fistula as 
                        identified in the claim from the long-
                        term care hospital.
                          (iii) Wound defined.--In this 
                        subparagraph, the term ``wound'' means 
                        an injury involving division of tissue 
                        or rupture of the integument or mucous 
                        membrane with exposure to the external 
                        environment.
          (7) Treatment of high cost outlier payments.--
                  (A) Adjustment to the standard federal 
                payment rate for estimated high cost outlier 
                payments.--Under the system described in 
                paragraph (1), for fiscal years beginning on or 
                after October 1, 2017, the Secretary shall 
                reduce the standard Federal payment rate as if 
                the estimated aggregate amount of high cost 
                outlier payments for standard Federal payment 
                rate discharges for each such fiscal year would 
                be equal to 8 percent of estimated aggregate 
                payments for standard Federal payment rate 
                discharges for each such fiscal year.
                  (B) Limitation on high cost outlier payment 
                amounts.--Notwithstanding subparagraph (A), the 
                Secretary shall set the fixed loss amount for 
                high cost outlier payments such that the 
                estimated aggregate amount of high cost outlier 
                payments made for standard Federal payment rate 
                discharges for fiscal years beginning on or 
                after October 1, 2017, shall be equal to 
                99.6875 percent of 8 percent of estimated 
                aggregate payments for standard Federal payment 
                rate discharges for each such fiscal year.
                  (C) Waiver of budget neutrality.--Any 
                reduction in payments resulting from the 
                application of subparagraph (B) shall not be 
                taken into account in applying any budget 
                neutrality provision under such system.
                  (D) No effect on site neutral high cost 
                outlier payment rate.--This paragraph shall not 
                apply with respect to the computation of the 
                applicable site neutral payment rate under 
                paragraph (6).
  (n) Incentives for Adoption and Meaningful Use of Certified 
EHR Technology.--
          (1) In general.--Subject to the succeeding provisions 
        of this subsection, with respect to inpatient hospital 
        services furnished by an eligible hospital during a 
        payment year (as defined in paragraph (2)(G)), if the 
        eligible hospital is a meaningful EHR user (as 
        determined under paragraph (3)) for the EHR reporting 
        period with respect to such year, in addition to the 
        amount otherwise paid under this section, there also 
        shall be paid to the eligible hospital, from the 
        Federal Hospital Insurance Trust Fund established under 
        section 1817, an amount equal to the applicable amount 
        specified in paragraph (2)(A) for the hospital for such 
        payment year.
          (2) Payment amount.--
                  (A) In general.--Subject to the succeeding 
                subparagraphs of this paragraph, the applicable 
                amount specified in this subparagraph for an 
                eligible hospital for a payment year is equal 
                to the product of the following:
                          (i) Initial amount.--The sum of--
                                  (I) the base amount specified 
                                in subparagraph (B); plus
                                  (II) the discharge related 
                                amount specified in 
                                subparagraph (C) for a 12-month 
                                period selected by the 
                                Secretary with respect to such 
                                payment year.
                          (ii) Medicare share.--The Medicare 
                        share as specified in subparagraph (D) 
                        for the eligible hospital for a period 
                        selected by the Secretary with respect 
                        to such payment year.
                          (iii) Transition factor.--The 
                        transition factor specified in 
                        subparagraph (E) for the eligible 
                        hospital for the payment year.
                  (B) Base amount.--The base amount specified 
                in this subparagraph is $2,000,000.
                  (C) Discharge related amount.--The discharge 
                related amount specified in this subparagraph 
                for a 12-month period selected by the Secretary 
                shall be determined as the sum of the amount, 
                estimated based upon total discharges for the 
                eligible hospital (regardless of any source of 
                payment) for the period, for each discharge up 
                to the 23,000th discharge as follows:
                          (i) For the first through 1,149th 
                        discharge, $0.
                          (ii) For the 1,150th through the 
                        23,000th discharge, $200.
                          (iii) For any discharge greater than 
                        the 23,000th, $0.
                  (D) Medicare share.--The Medicare share 
                specified under this subparagraph for an 
                eligible hospital for a period selected by the 
                Secretary for a payment year is equal to the 
                fraction--
                          (i) the numerator of which is the sum 
                        (for such period and with respect to 
                        the eligible hospital) of--
                                  (I) the estimated number of 
                                inpatient-bed-days (as 
                                established by the Secretary) 
                                which are attributable to 
                                individuals with respect to 
                                whom payment may be made under 
                                part A; and
                                  (II) the estimated number of 
                                inpatient-bed-days (as so 
                                established) which are 
                                attributable to individuals who 
                                are enrolled with a Medicare 
                                Advantage organization under 
                                part C; and
                          (ii) the denominator of which is the 
                        product of--
                                  (I) the estimated total 
                                number of inpatient-bed-days 
                                with respect to the eligible 
                                hospital during such period; 
                                and
                                  (II) the estimated total 
                                amount of the eligible 
                                hospital's charges during such 
                                period, not including any 
                                charges that are attributable 
                                to charity care (as such term 
                                is used for purposes of 
                                hospital cost reporting under 
                                this title), divided by the 
                                estimated total amount of the 
                                hospital's charges during such 
                                period.
                Insofar as the Secretary determines that data 
                are not available on charity care necessary to 
                calculate the portion of the formula specified 
                in clause (ii)(II), the Secretary shall use 
                data on uncompensated care and may adjust such 
                data so as to be an appropriate proxy for 
                charity care including a downward adjustment to 
                eliminate bad debt data from uncompensated care 
                data. In the absence of the data necessary, 
                with respect to a hospital, for the Secretary 
                to compute the amount described in clause 
                (ii)(II), the amount under such clause shall be 
                deemed to be 1. In the absence of data, with 
                respect to a hospital, necessary to compute the 
                amount described in clause (i)(II), the amount 
                under such clause shall be deemed to be 0.
                  (E) Transition factor specified.--
                          (i) In general.--Subject to clause 
                        (ii), the transition factor specified 
                        in this subparagraph for an eligible 
                        hospital for a payment year is as 
                        follows:
                                  (I) For the first payment 
                                year for such hospital, 1.
                                  (II) For the second payment 
                                year for such hospital, \3/4\.
                                  (III) For the third payment 
                                year for such hospital, \1/2\.
                                  (IV) For the fourth payment 
                                year for such hospital, \1/4\.
                                  (V) For any succeeding 
                                payment year for such hospital, 
                                0.
                          (ii) Phase down for eligible 
                        hospitals first adopting ehr after 
                        2013.--If the first payment year for an 
                        eligible hospital is after 2013, then 
                        the transition factor specified in this 
                        subparagraph for a payment year for 
                        such hospital is the same as the amount 
                        specified in clause (i) for such 
                        payment year for an eligible hospital 
                        for which the first payment year is 
                        2013. If the first payment year for an 
                        eligible hospital is after 2015 then 
                        the transition factor specified in this 
                        subparagraph for such hospital and for 
                        such year and any subsequent year shall 
                        be 0.
                  (F) Form of payment.--The payment under this 
                subsection for a payment year may be in the 
                form of a single consolidated payment or in the 
                form of such periodic installments as the 
                Secretary may specify.
                  (G) Payment year defined.--
                          (i) In general.--For purposes of this 
                        subsection, the term ``payment year'' 
                        means a fiscal year beginning with 
                        fiscal year 2011.
                          (ii) First, second, etc. payment 
                        year.--The term ``first payment year'' 
                        means, with respect to inpatient 
                        hospital services furnished by an 
                        eligible hospital, the first fiscal 
                        year for which an incentive payment is 
                        made for such services under this 
                        subsection. The terms ``second payment 
                        year'', ``third payment year'', and 
                        ``fourth payment year'' mean, with 
                        respect to an eligible hospital, each 
                        successive year immediately following 
                        the first payment year for that 
                        hospital.
          (3) Meaningful ehr user.--
                  (A) In general.--For purposes of paragraph 
                (1), an eligible hospital shall be treated as a 
                meaningful EHR user for an EHR reporting period 
                for a payment year (or, for purposes of 
                subsection (b)(3)(B)(ix), for an EHR reporting 
                period under such subsection for a fiscal year) 
                if each of the following requirements are met:
                          (i) Meaningful use of certified ehr 
                        technology.--The eligible hospital 
                        demonstrates to the satisfaction of the 
                        Secretary, in accordance with 
                        subparagraph (C)(i), that during such 
                        period the hospital is using certified 
                        EHR technology in a meaningful manner.
                          (ii) Information exchange.--The 
                        eligible hospital demonstrates to the 
                        satisfaction of the Secretary, in 
                        accordance with subparagraph (C)(i), 
                        that during such period such certified 
                        EHR technology is connected in a manner 
                        that provides, in accordance with law 
                        and standards applicable to the 
                        exchange of information, for the 
                        electronic exchange of health 
                        information to improve the quality of 
                        health care, such as promoting care 
                        coordination, and the hospital 
                        demonstrates (through a process 
                        specified by the Secretary, such as the 
                        use of an attestation) that the 
                        hospital has not knowingly and 
                        willfully taken action (such as to 
                        disable functionality) to limit or 
                        restrict the compatibility or 
                        interoperability of the certified EHR 
                        technology.
                          (iii) Reporting on measures using 
                        ehr.--Subject to subparagraph (B)(ii) 
                        and using such certified EHR 
                        technology, the eligible hospital 
                        submits information for such period, in 
                        a form and manner specified by the 
                        Secretary, on such clinical quality 
                        measures and such other measures as 
                        selected by the Secretary under 
                        subparagraph (B)(i).
                The Secretary shall seek to improve the use of 
                electronic health records and health care 
                quality over time [by requiring more stringent 
                measures of meaningful use selected under this 
                paragraph].
                  (B) Reporting on measures.--
                          (i) Selection.--The Secretary shall 
                        select measures for purposes of 
                        subparagraph (A)(iii) but only 
                        consistent with the following:
                                  (I) The Secretary shall 
                                provide preference to clinical 
                                quality measures that have been 
                                selected for purposes of 
                                applying subsection 
                                (b)(3)(B)(viii) or that have 
                                been endorsed by the entity 
                                with a contract with the 
                                Secretary under section 
                                1890(a).
                                  (II) Prior to any measure 
                                (other than a clinical quality 
                                measure that has been selected 
                                for purposes of applying 
                                subsection (b)(3)(B)(viii)) 
                                being selected under this 
                                subparagraph, the Secretary 
                                shall publish in the Federal 
                                Register such measure and 
                                provide for a period of public 
                                comment on such measure.
                          (ii) Limitations.--The Secretary may 
                        not require the electronic reporting of 
                        information on clinical quality 
                        measures under subparagraph (A)(iii) 
                        unless the Secretary has the capacity 
                        to accept the information 
                        electronically, which may be on a pilot 
                        basis.
                          (iii) Coordination of reporting of 
                        information.--In selecting such 
                        measures, and in establishing the form 
                        and manner for reporting measures under 
                        subparagraph (A)(iii), the Secretary 
                        shall seek to avoid redundant or 
                        duplicative reporting with reporting 
                        otherwise required, including reporting 
                        under subsection (b)(3)(B)(viii).
                  (C) Demonstration of meaningful use of 
                certified ehr technology and information 
                exchange.--
                          (i) In general.--An eligible hospital 
                        may satisfy the demonstration 
                        requirement of clauses (i) and (ii) of 
                        subparagraph (A) through means 
                        specified by the Secretary, which may 
                        include--
                                  (I) an attestation;
                                  (II) the submission of claims 
                                with appropriate coding (such 
                                as a code indicating that 
                                inpatient care was documented 
                                using certified EHR 
                                technology);
                                  (III) a survey response;
                                  (IV) reporting under 
                                subparagraph (A)(iii); and
                                  (V) other means specified by 
                                the Secretary.
                          (ii) Use of part d data.--
                        Notwithstanding sections 1860D-
                        15(d)(2)(B) and 1860D-15(f)(2), the 
                        Secretary may use data regarding drug 
                        claims submitted for purposes of 
                        section 1860D-15 that are necessary for 
                        purposes of subparagraph (A).
          (4) Application.--
                  (A) Limitations on review.--There shall be no 
                administrative or judicial review under section 
                1869, section 1878, or otherwise, of--
                          (i) the methodology and standards for 
                        determining payment amounts under this 
                        subsection and payment adjustments 
                        under subsection (b)(3)(B)(ix), 
                        including selection of periods under 
                        paragraph (2) for determining, and 
                        making estimates or using proxies of, 
                        discharges under paragraph (2)(C) and 
                        inpatient-bed-days, hospital charges, 
                        charity charges, and Medicare share 
                        under paragraph (2)(D);
                          (ii) the methodology and standards 
                        for determining a meaningful EHR user 
                        under paragraph (3), including 
                        selection of measures under paragraph 
                        (3)(B), specification of the means of 
                        demonstrating meaningful EHR use under 
                        paragraph (3)(C), and the hardship 
                        exception under subsection 
                        (b)(3)(B)(ix)(II); and
                          (iii) the specification of EHR 
                        reporting periods under paragraph 
                        (6)(B) and the selection of the form of 
                        payment under paragraph (2)(F).
                  (B) Posting on website.--The Secretary shall 
                post on the Internet website of the Centers for 
                Medicare & Medicaid Services, in an easily 
                understandable format, a list of the names of 
                the eligible hospitals that are meaningful EHR 
                users under this subsection or subsection 
                (b)(3)(B)(ix) (and a list of the names of 
                critical access hospitals to which paragraph 
                (3) or (4) of section 1814(l) applies), and 
                other relevant data as determined appropriate 
                by the Secretary. The Secretary shall ensure 
                that an eligible hospital (or critical access 
                hospital) has the opportunity to review the 
                other relevant data that are to be made public 
                with respect to the hospital (or critical 
                access hospital) prior to such data being made 
                public.
          (5) Certified ehr technology defined.--The term 
        ``certified EHR technology'' has the meaning given such 
        term in section 1848(o)(4).
          (6) Definitions.--For purposes of this subsection:
                  (A) EHR reporting period.--The term ``EHR 
                reporting period'' means, with respect to a 
                payment year, any period (or periods) as 
                specified by the Secretary.
                  (B) Eligible hospital.--The term ``eligible 
                hospital'' means a hospital that is a 
                subsection (d) hospital or a subsection (d) 
                Puerto Rico hospital.
  (o) Hospital Value-Based Purchasing Program.--
          (1) Establishment.--
                  (A) In general.--Subject to the succeeding 
                provisions of this subsection, the Secretary 
                shall establish a hospital value-based 
                purchasing program (in this subsection referred 
                to as the ``Program'') under which value-based 
                incentive payments are made in a fiscal year to 
                hospitals that meet the performance standards 
                under paragraph (3) for the performance period 
                for such fiscal year (as established under 
                paragraph (4)).
                  (B) Program to begin in fiscal year 2013.--
                The Program shall apply to payments for 
                discharges occurring on or after October 1, 
                2012.
                  (C) Applicability of program to hospitals.--
                          (i) In general.--For purposes of this 
                        subsection, subject to clause (ii), the 
                        term ``hospital'' means a subsection 
                        (d) hospital (as defined in subsection 
                        (d)(1)(B)).
                          (ii) Exclusions.--The term 
                        ``hospital'' shall not include, with 
                        respect to a fiscal year, a hospital--
                                  (I) that is subject to the 
                                payment reduction under 
                                subsection (b)(3)(B)(viii)(I) 
                                for such fiscal year;
                                  (II) for which, during the 
                                performance period for such 
                                fiscal year, the Secretary has 
                                cited deficiencies that pose 
                                immediate jeopardy to the 
                                health or safety of patients;
                                  (III) for which there are not 
                                a minimum number (as determined 
                                by the Secretary) of measures 
                                that apply to the hospital for 
                                the performance period for such 
                                fiscal year; or
                                  (IV) for which there are not 
                                a minimum number (as determined 
                                by the Secretary) of cases for 
                                the measures that apply to the 
                                hospital for the performance 
                                period for such fiscal year.
                          (iii) Independent analysis.--For 
                        purposes of determining the minimum 
                        numbers under subclauses (III) and (IV) 
                        of clause (ii), the Secretary shall 
                        have conducted an independent analysis 
                        of what numbers are appropriate.
                          (iv) Exemption.--In the case of a 
                        hospital that is paid under section 
                        1814(b)(3), the Secretary may exempt 
                        such hospital from the application of 
                        this subsection if the State which is 
                        paid under such section submits an 
                        annual report to the Secretary 
                        describing how a similar program in the 
                        State for a participating hospital or 
                        hospitals achieves or surpasses the 
                        measured results in terms of patient 
                        health outcomes and cost savings 
                        established under this subsection.
          (2) Measures.--
                  (A) In general.--The Secretary shall select 
                measures, other than measures of readmissions, 
                for purposes of the Program. Such measures 
                shall be selected from the measures specified 
                under subsection (b)(3)(B)(viii).
                  (B) Requirements.--
                          (i) For fiscal year 2013.--For value-
                        based incentive payments made with 
                        respect to discharges occurring during 
                        fiscal year 2013, the Secretary shall 
                        ensure the following:
                                  (I) Conditions or 
                                procedures.--Measures are 
                                selected under subparagraph (A) 
                                that cover at least the 
                                following 5 specific conditions 
                                or procedures:
                                          (aa) Acute myocardial 
                                        infarction (AMI).
                                          (bb) Heart failure.
                                          (cc) Pneumonia.
                                          (dd) Surgeries, as 
                                        measured by the 
                                        Surgical Care 
                                        Improvement Project 
                                        (formerly referred to 
                                        as ``Surgical Infection 
                                        Prevention'' for 
                                        discharges occurring 
                                        before July 2006).
                                          (ee) Healthcare-
                                        associated infections, 
                                        as measured by the 
                                        prevention metrics and 
                                        targets established in 
                                        the HHS Action Plan to 
                                        Prevent Healthcare-
                                        Associated Infections 
                                        (or any successor plan) 
                                        of the Department of 
                                        Health and Human 
                                        Services.
                                  (II) HCAHPS.--Measures 
                                selected under subparagraph (A) 
                                shall be related to the 
                                Hospital Consumer Assessment of 
                                Healthcare Providers and 
                                Systems survey (HCAHPS).
                          (ii) Inclusion of efficiency 
                        measures.--For value-based incentive 
                        payments made with respect to 
                        discharges occurring during fiscal year 
                        2014 or a subsequent fiscal year, the 
                        Secretary shall ensure that measures 
                        selected under subparagraph (A) include 
                        efficiency measures, including measures 
                        of ``Medicare spending per 
                        beneficiary''. Such measures shall be 
                        adjusted for factors such as age, sex, 
                        race, severity of illness, and other 
                        factors that the Secretary determines 
                        appropriate.
                  (C) Limitations.--
                          (i) Time requirement for prior 
                        reporting and notice.--The Secretary 
                        may not select a measure under 
                        subparagraph (A) for use under the 
                        Program with respect to a performance 
                        period for a fiscal year (as 
                        established under paragraph (4)) unless 
                        such measure has been specified under 
                        subsection (b)(3)(B)(viii) and included 
                        on the Hospital Compare Internet 
                        website for at least 1 year prior to 
                        the beginning of such performance 
                        period.
                          (ii) Measure not applicable unless 
                        hospital furnishes services appropriate 
                        to the measure.--A measure selected 
                        under subparagraph (A) shall not apply 
                        to a hospital if such hospital does not 
                        furnish services appropriate to such 
                        measure.
                  (D) Replacing measures.--Subclause (VI) of 
                subsection (b)(3)(B)(viii) shall apply to 
                measures selected under subparagraph (A) in the 
                same manner as such subclause applies to 
                measures selected under such subsection.
          (3) Performance standards.--
                  (A) Establishment.--The Secretary shall 
                establish performance standards with respect to 
                measures selected under paragraph (2) for a 
                performance period for a fiscal year (as 
                established under paragraph (4)).
                  (B) Achievement and improvement.--The 
                performance standards established under 
                subparagraph (A) shall include levels of 
                achievement and improvement.
                  (C) Timing.--The Secretary shall establish 
                and announce the performance standards under 
                subparagraph (A) not later than 60 days prior 
                to the beginning of the performance period for 
                the fiscal year involved.
                  (D) Considerations in establishing 
                standards.--In establishing performance 
                standards with respect to measures under this 
                paragraph, the Secretary shall take into 
                account appropriate factors, such as--
                          (i) practical experience with the 
                        measures involved, including whether a 
                        significant proportion of hospitals 
                        failed to meet the performance standard 
                        during previous performance periods;
                          (ii) historical performance 
                        standards;
                          (iii) improvement rates; and
                          (iv) the opportunity for continued 
                        improvement.
          (4) Performance period.--For purposes of the Program, 
        the Secretary shall establish the performance period 
        for a fiscal year. Such performance period shall begin 
        and end prior to the beginning of such fiscal year.
          (5) Hospital performance score.--
                  (A) In general.--Subject to subparagraph (B), 
                the Secretary shall develop a methodology for 
                assessing the total performance of each 
                hospital based on performance standards with 
                respect to the measures selected under 
                paragraph (2) for a performance period (as 
                established under paragraph (4)). Using such 
                methodology, the Secretary shall provide for an 
                assessment (in this subsection referred to as 
                the ``hospital performance score'') for each 
                hospital for each performance period.
                  (B) Application.--
                          (i) Appropriate distribution.--The 
                        Secretary shall ensure that the 
                        application of the methodology 
                        developed under subparagraph (A) 
                        results in an appropriate distribution 
                        of value-based incentive payments under 
                        paragraph (6) among hospitals achieving 
                        different levels of hospital 
                        performance scores, with hospitals 
                        achieving the highest hospital 
                        performance scores receiving the 
                        largest value-based incentive payments.
                          (ii) Higher of achievement or 
                        improvement.--The methodology developed 
                        under subparagraph (A) shall provide 
                        that the hospital performance score is 
                        determined using the higher of its 
                        achievement or improvement score for 
                        each measure.
                          (iii) Weights.--The methodology 
                        developed under subparagraph (A) shall 
                        provide for the assignment of weights 
                        for categories of measures as the 
                        Secretary determines appropriate.
                          (iv) No minimum performance 
                        standard.--The Secretary shall not set 
                        a minimum performance standard in 
                        determining the hospital performance 
                        score for any hospital.
                          (v) Reflection of measures applicable 
                        to the hospital.--The hospital 
                        performance score for a hospital shall 
                        reflect the measures that apply to the 
                        hospital.
          (6) Calculation of value-based incentive payments.--
                  (A) In general.--In the case of a hospital 
                that the Secretary determines meets (or 
                exceeds) the performance standards under 
                paragraph (3) for the performance period for a 
                fiscal year (as established under paragraph 
                (4)), the Secretary shall increase the base 
                operating DRG payment amount (as defined in 
                paragraph (7)(D)), as determined after 
                application of paragraph (7)(B)(i), for a 
                hospital for each discharge occurring in such 
                fiscal year by the value-based incentive 
                payment amount.
                  (B) Value-based incentive payment amount.--
                The value-based incentive payment amount for 
                each discharge of a hospital in a fiscal year 
                shall be equal to the product of--
                          (i) the base operating DRG payment 
                        amount (as defined in paragraph (7)(D)) 
                        for the discharge for the hospital for 
                        such fiscal year; and
                          (ii) the value-based incentive 
                        payment percentage specified under 
                        subparagraph (C) for the hospital for 
                        such fiscal year.
                  (C) Value-based incentive payment 
                percentage.--
                          (i) In general.--The Secretary shall 
                        specify a value-based incentive payment 
                        percentage for a hospital for a fiscal 
                        year.
                          (ii) Requirements.--In specifying the 
                        value-based incentive payment 
                        percentage for each hospital for a 
                        fiscal year under clause (i), the 
                        Secretary shall ensure that--
                                  (I) such percentage is based 
                                on the hospital performance 
                                score of the hospital under 
                                paragraph (5); and
                                  (II) the total amount of 
                                value-based incentive payments 
                                under this paragraph to all 
                                hospitals in such fiscal year 
                                is equal to the total amount 
                                available for value-based 
                                incentive payments for such 
                                fiscal year under paragraph 
                                (7)(A), as estimated by the 
                                Secretary.
          (7) Funding for value-based incentive payments.--
                  (A) Amount.--The total amount available for 
                value-based incentive payments under paragraph 
                (6) for all hospitals for a fiscal year shall 
                be equal to the total amount of reduced 
                payments for all hospitals under subparagraph 
                (B) for such fiscal year, as estimated by the 
                Secretary.
                  (B) Adjustment to payments.--
                          (i) In general.--The Secretary shall 
                        reduce the base operating DRG payment 
                        amount (as defined in subparagraph (D)) 
                        for a hospital for each discharge in a 
                        fiscal year (beginning with fiscal year 
                        2013) by an amount equal to the 
                        applicable percent (as defined in 
                        subparagraph (C)) of the base operating 
                        DRG payment amount for the discharge 
                        for the hospital for such fiscal year. 
                        The Secretary shall make such 
                        reductions for all hospitals in the 
                        fiscal year involved, regardless of 
                        whether or not the hospital has been 
                        determined by the Secretary to have 
                        earned a value-based incentive payment 
                        under paragraph (6) for such fiscal 
                        year.
                          (ii) No effect on other payments.--
                        Payments described in items (aa) and 
                        (bb) of subparagraph (D)(i)(II) for a 
                        hospital shall be determined as if this 
                        subsection had not been enacted.
                  (C) Applicable percent defined.--For purposes 
                of subparagraph (B), the term ``applicable 
                percent'' means--
                          (i) with respect to fiscal year 2013, 
                        1.0 percent;
                          (ii) with respect to fiscal year 
                        2014, 1.25 percent;
                          (iii) with respect to fiscal year 
                        2015, 1.5 percent;
                          (iv) with respect to fiscal year 
                        2016, 1.75 percent; and
                          (v) with respect to fiscal year 2017 
                        and succeeding fiscal years, 2 percent.
                  (D) Base operating drg payment amount 
                defined.--
                          (i) In general.--Except as provided 
                        in clause (ii), in this subsection, the 
                        term ``base operating DRG payment 
                        amount'' means, with respect to a 
                        hospital for a fiscal year--
                                  (I) the payment amount that 
                                would otherwise be made under 
                                subsection (d) (determined 
                                without regard to subsection 
                                (q)) for a discharge if this 
                                subsection did not apply; 
                                reduced by
                                  (II) any portion of such 
                                payment amount that is 
                                attributable to--
                                          (aa) payments under 
                                        paragraphs (5)(A), 
                                        (5)(B), (5)(F), and 
                                        (12) of subsection (d); 
                                        and
                                          (bb) such other 
                                        payments under 
                                        subsection (d) 
                                        determined appropriate 
                                        by the Secretary.
                          (ii) Special rules for certain 
                        hospitals.--
                                  (I) Sole community hospitals 
                                and medicare-dependent, small 
                                rural hospitals.--In the case 
                                of a medicare-dependent, small 
                                rural hospital (with respect to 
                                discharges occurring during 
                                fiscal year 2012 and 2013) or a 
                                sole community hospital, in 
                                applying subparagraph (A)(i), 
                                the payment amount that would 
                                otherwise be made under 
                                subsection (d) shall be 
                                determined without regard to 
                                subparagraphs (I) and (L) of 
                                subsection (b)(3) and 
                                subparagraphs (D) and (G) of 
                                subsection (d)(5).
                                  (II) Hospitals paid under 
                                section 1814.--In the case of a 
                                hospital that is paid under 
                                section 1814(b)(3), the term 
                                ``base operating DRG payment 
                                amount'' means the payment 
                                amount under such section.
          (8) Announcement of net result of adjustments.--Under 
        the Program, the Secretary shall, not later than 60 
        days prior to the fiscal year involved, inform each 
        hospital of the adjustments to payments to the hospital 
        for discharges occurring in such fiscal year under 
        paragraphs (6) and (7)(B)(i).
          (9) No effect in subsequent fiscal years.--The value-
        based incentive payment under paragraph (6) and the 
        payment reduction under paragraph (7)(B)(i) shall each 
        apply only with respect to the fiscal year involved, 
        and the Secretary shall not take into account such 
        value-based incentive payment or payment reduction in 
        making payments to a hospital under this section in a 
        subsequent fiscal year.
          (10) Public reporting.--
                  (A) Hospital specific information.--
                          (i) In general.--The Secretary shall 
                        make information available to the 
                        public regarding the performance of 
                        individual hospitals under the Program, 
                        including--
                                  (I) the performance of the 
                                hospital with respect to each 
                                measure that applies to the 
                                hospital;
                                  (II) the performance of the 
                                hospital with respect to each 
                                condition or procedure; and
                                  (III) the hospital 
                                performance score assessing the 
                                total performance of the 
                                hospital.
                          (ii) Opportunity to review and submit 
                        corrections.--The Secretary shall 
                        ensure that a hospital has the 
                        opportunity to review, and submit 
                        corrections for, the information to be 
                        made public with respect to the 
                        hospital under clause (i) prior to such 
                        information being made public.
                          (iii) Website.--Such information 
                        shall be posted on the Hospital Compare 
                        Internet website in an easily 
                        understandable format.
                  (B) Aggregate information.--The Secretary 
                shall periodically post on the Hospital Compare 
                Internet website aggregate information on the 
                Program, including--
                          (i) the number of hospitals receiving 
                        value-based incentive payments under 
                        paragraph (6) and the range and total 
                        amount of such value-based incentive 
                        payments; and
                          (ii) the number of hospitals 
                        receiving less than the maximum value-
                        based incentive payment available to 
                        the hospital for the fiscal year 
                        involved and the range and amount of 
                        such payments.
          (11) Implementation.--
                  (A) Appeals.--The Secretary shall establish a 
                process by which hospitals may appeal the 
                calculation of a hospital's performance 
                assessment with respect to the performance 
                standards established under paragraph (3)(A) 
                and the hospital performance score under 
                paragraph (5). The Secretary shall ensure that 
                such process provides for resolution of such 
                appeals in a timely manner.
                  (B) Limitation on review.--Except as provided 
                in subparagraph (A), there shall be no 
                administrative or judicial review under section 
                1869, section 1878, or otherwise of the 
                following:
                          (i) The methodology used to determine 
                        the amount of the value-based incentive 
                        payment under paragraph (6) and the 
                        determination of such amount.
                          (ii) The determination of the amount 
                        of funding available for such value-
                        based incentive payments under 
                        paragraph (7)(A) and the payment 
                        reduction under paragraph (7)(B)(i).
                          (iii) The establishment of the 
                        performance standards under paragraph 
                        (3) and the performance period under 
                        paragraph (4).
                          (iv) The measures specified under 
                        subsection (b)(3)(B)(viii) and the 
                        measures selected under paragraph (2).
                          (v) The methodology developed under 
                        paragraph (5) that is used to calculate 
                        hospital performance scores and the 
                        calculation of such scores.
                          (vi) The validation methodology 
                        specified in subsection 
                        (b)(3)(B)(viii)(XI).
                  (C) Consultation with small hospitals.--The 
                Secretary shall consult with small rural and 
                urban hospitals on the application of the 
                Program to such hospitals.
          (12) Promulgation of regulations.--The Secretary 
        shall promulgate regulations to carry out the Program, 
        including the selection of measures under paragraph 
        (2), the methodology developed under paragraph (5) that 
        is used to calculate hospital performance scores, and 
        the methodology used to determine the amount of value-
        based incentive payments under paragraph (6).
  (p) Adjustment to Hospital Payments for Hospital Acquired 
Conditions.--
          (1) In general.--In order to provide an incentive for 
        applicable hospitals to reduce hospital acquired 
        conditions under this title, with respect to discharges 
        from an applicable hospital occurring during fiscal 
        year 2015 or a subsequent fiscal year, the amount of 
        payment under this section or section 1814(b)(3), as 
        applicable, for such discharges during the fiscal year 
        shall be equal to 99 percent of the amount of payment 
        that would otherwise apply to such discharges under 
        this section or section 1814(b)(3) (determined after 
        the application of subsections (o) and (q) and section 
        1814(l)(4) but without regard to this subsection).
          (2) Applicable hospitals.--
                  (A) In general.--For purposes of this 
                subsection, the term ``applicable hospital'' 
                means a subsection (d) hospital that meets the 
                criteria described in subparagraph (B).
                  (B) Criteria described.--
                          (i) In general.--The criteria 
                        described in this subparagraph, with 
                        respect to a subsection (d) hospital, 
                        is that the subsection (d) hospital is 
                        in the top quartile of all subsection 
                        (d) hospitals, relative to the national 
                        average, of hospital acquired 
                        conditions during the applicable 
                        period, as determined by the Secretary.
                          (ii) Risk adjustment.--In carrying 
                        out clause (i), the Secretary shall 
                        establish and apply an appropriate risk 
                        adjustment methodology.
                  (C) Exemption.--In the case of a hospital 
                that is paid under section 1814(b)(3), the 
                Secretary may exempt such hospital from the 
                application of this subsection if the State 
                which is paid under such section submits an 
                annual report to the Secretary describing how a 
                similar program in the State for a 
                participating hospital or hospitals achieves or 
                surpasses the measured results in terms of 
                patient health outcomes and cost savings 
                established under this subsection.
          (3) Hospital acquired conditions.--For purposes of 
        this subsection, the term ``hospital acquired 
        condition'' means a condition identified for purposes 
        of subsection (d)(4)(D)(iv) and any other condition 
        determined appropriate by the Secretary that an 
        individual acquires during a stay in an applicable 
        hospital, as determined by the Secretary.
          (4) Applicable period.--In this subsection, the term 
        ``applicable period'' means, with respect to a fiscal 
        year, a period specified by the Secretary.
          (5) Reporting to hospitals.--Prior to fiscal year 
        2015 and each subsequent fiscal year, the Secretary 
        shall provide confidential reports to applicable 
        hospitals with respect to hospital acquired conditions 
        of the applicable hospital during the applicable 
        period.
          (6) Reporting hospital specific information.--
                  (A) In general.--The Secretary shall make 
                information available to the public regarding 
                hospital acquired conditions of each applicable 
                hospital.
                  (B) Opportunity to review and submit 
                corrections.--The Secretary shall ensure that 
                an applicable hospital has the opportunity to 
                review, and submit corrections for, the 
                information to be made public with respect to 
                the hospital under subparagraph (A) prior to 
                such information being made public.
                  (C) Website.--Such information shall be 
                posted on the Hospital Compare Internet website 
                in an easily understandable format.
          (7) Limitations on review.--There shall be no 
        administrative or judicial review under section 1869, 
        section 1878, or otherwise of the following:
                  (A) The criteria described in paragraph 
                (2)(A).
                  (B) The specification of hospital acquired 
                conditions under paragraph (3).
                  (C) The specification of the applicable 
                period under paragraph (4).
                  (D) The provision of reports to applicable 
                hospitals under paragraph (5) and the 
                information made available to the public under 
                paragraph (6).
  (q) Hospital Readmissions Reduction Program.--
          (1) In general.--With respect to payment for 
        discharges from an applicable hospital (as defined in 
        paragraph (5)(C)) occurring during a fiscal year 
        beginning on or after October 1, 2012, in order to 
        account for excess readmissions in the hospital, the 
        Secretary shall make payments (in addition to the 
        payments described in paragraph (2)(A)(ii)) for such a 
        discharge to such hospital under subsection (d) (or 
        section 1814(b)(3), as the case may be) in an amount 
        equal to the product of--
                  (A) the base operating DRG payment amount (as 
                defined in paragraph (2)) for the discharge; 
                and
                  (B) the adjustment factor (described in 
                paragraph (3)(A)) for the hospital for the 
                fiscal year.
          (2) Base operating drg payment amount defined.--
                  (A) In general.--Except as provided in 
                subparagraph (B), in this subsection, the term 
                ``base operating DRG payment amount'' means, 
                with respect to a hospital for a fiscal year--
                          (i) the payment amount that would 
                        otherwise be made under subsection (d) 
                        (determined without regard to 
                        subsection (o)) for a discharge if this 
                        subsection did not apply; reduced by
                          (ii) any portion of such payment 
                        amount that is attributable to payments 
                        under paragraphs (5)(A), (5)(B), 
                        (5)(F), and (12) of subsection (d).
                  (B) Special rules for certain hospitals.--
                          (i) Sole community hospitals and 
                        medicare-dependent, small rural 
                        hospitals.--In the case of a medicare-
                        dependent, small rural hospital (with 
                        respect to discharges occurring during 
                        fiscal years 2012 and 2013) or a sole 
                        community hospital, in applying 
                        subparagraph (A)(i), the payment amount 
                        that would otherwise be made under 
                        subsection (d) shall be determined 
                        without regard to subparagraphs (I) and 
                        (L) of subsection (b)(3) and 
                        subparagraphs (D) and (G) of subsection 
                        (d)(5).
                          (ii) Hospitals paid under section 
                        1814.--In the case of a hospital that 
                        is paid under section 1814(b)(3), the 
                        Secretary may exempt such hospitals 
                        provided that States paid under such 
                        section submit an annual report to the 
                        Secretary describing how a similar 
                        program in the State for a 
                        participating hospital or hospitals 
                        achieves or surpasses the measured 
                        results in terms of patient health 
                        outcomes and cost savings established 
                        herein with respect to this section.
          (3) Adjustment factor.--
                  (A) In general.--For purposes of paragraph 
                (1), subject to subparagraph (D), the 
                adjustment factor under this paragraph for an 
                applicable hospital for a fiscal year is equal 
                to the greater of--
                          (i) the ratio described in 
                        subparagraph (B) for the hospital for 
                        the applicable period (as defined in 
                        paragraph (5)(D)) for such fiscal year; 
                        or
                          (ii) the floor adjustment factor 
                        specified in subparagraph (C).
                  (B) Ratio.--The ratio described in this 
                subparagraph for a hospital for an applicable 
                period is equal to 1 minus the ratio of--
                          (i) the aggregate payments for excess 
                        readmissions (as defined in paragraph 
                        (4)(A)) with respect to an applicable 
                        hospital for the applicable period; and
                          (ii) the aggregate payments for all 
                        discharges (as defined in paragraph 
                        (4)(B)) with respect to such applicable 
                        hospital for such applicable period.
                  (C) Floor adjustment factor.--For purposes of 
                subparagraph (A), the floor adjustment factor 
                specified in this subparagraph for--
                          (i) fiscal year 2013 is 0.99;
                          (ii) fiscal year 2014 is 0.98; or
                          (iii) fiscal year 2015 and subsequent 
                        fiscal years is 0.97.
                  (D) Transitional adjustment for dual 
                eligibles.--
                          (i) In general.--In determining a 
                        hospital's adjustment factor under this 
                        paragraph for purposes of making 
                        payments for discharges occurring 
                        during and after fiscal year 2019, and 
                        before the application of clause (i) of 
                        subparagraph (E), the Secretary shall 
                        assign hospitals to groups (as defined 
                        by the Secretary under clause (ii)) and 
                        apply the applicable provisions of this 
                        subsection using a methodology in a 
                        manner that allows for separate 
                        comparison of hospitals within each 
                        such group, as determined by the 
                        Secretary.
                          (ii) Defining groups.--For purposes 
                        of this subparagraph, the Secretary 
                        shall define groups of hospitals, based 
                        on their overall proportion, of the 
                        inpatients who are entitled to, or 
                        enrolled for, benefits under part A, 
                        and who are full-benefit dual eligible 
                        individuals (as defined in section 
                        1935(c)(6)). In defining groups, the 
                        Secretary shall consult the Medicare 
                        Payment Advisory Commission and may 
                        consider the analysis done by such 
                        Commission in preparing the portion of 
                        its report submitted to Congress in 
                        June 2013 relating to readmissions.
                          (iii) Minimizing reporting burden on 
                        hospitals.--In carrying out this 
                        subparagraph, the Secretary shall not 
                        impose any additional reporting 
                        requirements on hospitals.
                          (iv) Budget neutral design 
                        methodology.--The Secretary shall 
                        design the methodology to implement 
                        this subparagraph so that the estimated 
                        total amount of reductions in payments 
                        under this subsection equals the 
                        estimated total amount of reductions in 
                        payments that would otherwise occur 
                        under this subsection if this 
                        subparagraph did not apply.
                  (E) Changes in risk adjustment.--
                          (i) Consideration of recommendations 
                        in impact reports.--The Secretary may 
                        take into account the studies conducted 
                        and the recommendations made by the 
                        Secretary under section 2(d)(1) of the 
                        IMPACT Act of 2014 (Public Law 113-185; 
                        42 U.S.C. 1395lll note) with respect to 
                        the application under this subsection 
                        of risk adjustment methodologies. 
                        Nothing in this clause shall be 
                        construed as precluding consideration 
                        of the use of groupings of hospitals.
                          (ii) Consideration of exclusion of 
                        patient cases based on v or other 
                        appropriate codes.--In promulgating 
                        regulations to carry out this 
                        subsection with respect to discharges 
                        occurring after fiscal year 2018, the 
                        Secretary may consider the use of V or 
                        other ICD-related codes for removal of 
                        a readmission. The Secretary may 
                        consider modifying measures under this 
                        subsection to incorporate V or other 
                        ICD-related codes at the same time as 
                        other changes are being made under this 
                        subparagraph.
                          (iii) Removal of certain 
                        readmissions.--In promulgating 
                        regulations to carry out this 
                        subsection, with respect to discharges 
                        occurring after fiscal year 2018, the 
                        Secretary may consider removal as a 
                        readmission of an admission that is 
                        classified within one or more of the 
                        following: transplants, end-stage renal 
                        disease, burns, trauma, psychosis, or 
                        substance abuse. The Secretary may 
                        consider modifying measures under this 
                        subsection to remove readmissions at 
                        the same time as other changes are 
                        being made under this subparagraph.
          (4) Aggregate payments, excess readmission ratio 
        defined.--For purposes of this subsection:
                  (A) Aggregate payments for excess 
                readmissions.--The term ``aggregate payments 
                for excess readmissions'' means, for a hospital 
                for an applicable period, the sum, for 
                applicable conditions (as defined in paragraph 
                (5)(A)), of the product, for each applicable 
                condition, of--
                          (i) the base operating DRG payment 
                        amount for such hospital for such 
                        applicable period for such condition;
                          (ii) the number of admissions for 
                        such condition for such hospital for 
                        such applicable period; and
                          (iii) the excess readmissions ratio 
                        (as defined in subparagraph (C)) for 
                        such hospital for such applicable 
                        period minus 1.
                  (B) Aggregate payments for all discharges.--
                The term ``aggregate payments for all 
                discharges'' means, for a hospital for an 
                applicable period, the sum of the base 
                operating DRG payment amounts for all 
                discharges for all conditions from such 
                hospital for such applicable period.
                  (C) Excess readmission ratio.--
                          (i) In general.--Subject to clause 
                        (ii), the term ``excess readmissions 
                        ratio'' means, with respect to an 
                        applicable condition for a hospital for 
                        an applicable period, the ratio (but 
                        not less than 1.0) of--
                                  (I) the risk adjusted 
                                readmissions based on actual 
                                readmissions, as determined 
                                consistent with a readmission 
                                measure methodology that has 
                                been endorsed under paragraph 
                                (5)(A)(ii)(I), for an 
                                applicable hospital for such 
                                condition with respect to such 
                                applicable period; to
                                  (II) the risk adjusted 
                                expected readmissions (as 
                                determined consistent with such 
                                a methodology) for such 
                                hospital for such condition 
                                with respect to such applicable 
                                period.
                          (ii) Exclusion of certain 
                        readmissions.--For purposes of clause 
                        (i), with respect to a hospital, excess 
                        readmissions shall not include 
                        readmissions for an applicable 
                        condition for which there are fewer 
                        than a minimum number (as determined by 
                        the Secretary) of discharges for such 
                        applicable condition for the applicable 
                        period and such hospital.
          (5) Definitions.--For purposes of this subsection:
                  (A) Applicable condition.--The term 
                ``applicable condition'' means, subject to 
                subparagraph (B), a condition or procedure 
                selected by the Secretary among conditions and 
                procedures for which--
                          (i) readmissions (as defined in 
                        subparagraph (E)) that represent 
                        conditions or procedures that are high 
                        volume or high expenditures under this 
                        title (or other criteria specified by 
                        the Secretary); and
                          (ii) measures of such readmissions--
                                  (I) have been endorsed by the 
                                entity with a contract under 
                                section 1890(a); and
                                  (II) such endorsed measures 
                                have exclusions for 
                                readmissions that are unrelated 
                                to the prior discharge (such as 
                                a planned readmission or 
                                transfer to another applicable 
                                hospital).
                  (B) Expansion of applicable conditions.--
                Beginning with fiscal year 2015, the Secretary 
                shall, to the extent practicable, expand the 
                applicable conditions beyond the 3 conditions 
                for which measures have been endorsed as 
                described in subparagraph (A)(ii)(I) as of the 
                date of the enactment of this subsection to the 
                additional 4 conditions that have been 
                identified by the Medicare Payment Advisory 
                Commission in its report to Congress in June 
                2007 and to other conditions and procedures as 
                determined appropriate by the Secretary. In 
                expanding such applicable conditions, the 
                Secretary shall seek the endorsement described 
                in subparagraph (A)(ii)(I) but may apply such 
                measures without such an endorsement in the 
                case of a specified area or medical topic 
                determined appropriate by the Secretary for 
                which a feasible and practical measure has not 
                been endorsed by the entity with a contract 
                under section 1890(a) as long as due 
                consideration is given to measures that have 
                been endorsed or adopted by a consensus 
                organization identified by the Secretary.
                  (C) Applicable hospital.--The term 
                ``applicable hospital'' means a subsection (d) 
                hospital or a hospital that is paid under 
                section 1814(b)(3), as the case may be.
                  (D) Applicable period.--The term ``applicable 
                period'' means, with respect to a fiscal year, 
                such period as the Secretary shall specify.
                  (E) Readmission.--The term ``readmission'' 
                means, in the case of an individual who is 
                discharged from an applicable hospital, the 
                admission of the individual to the same or 
                another applicable hospital within a time 
                period specified by the Secretary from the date 
                of such discharge. Insofar as the discharge 
                relates to an applicable condition for which 
                there is an endorsed measure described in 
                subparagraph (A)(ii)(I), such time period (such 
                as 30 days) shall be consistent with the time 
                period specified for such measure.
          (6) Reporting hospital specific information.--
                  (A) In general.--The Secretary shall make 
                information available to the public regarding 
                readmission rates of each subsection (d) 
                hospital under the program.
                  (B) Opportunity to review and submit 
                corrections.--The Secretary shall ensure that a 
                subsection (d) hospital has the opportunity to 
                review, and submit corrections for, the 
                information to be made public with respect to 
                the hospital under subparagraph (A) prior to 
                such information being made public.
                  (C) Website.--Such information shall be 
                posted on the Hospital Compare Internet website 
                in an easily understandable format.
          (7) Limitations on review.--There shall be no 
        administrative or judicial review under section 1869, 
        section 1878, or otherwise of the following:
                  (A) The determination of base operating DRG 
                payment amounts.
                  (B) The methodology for determining the 
                adjustment factor under paragraph (3), 
                including excess readmissions ratio under 
                paragraph (4)(C), aggregate payments for excess 
                readmissions under paragraph (4)(A), and 
                aggregate payments for all discharges under 
                paragraph (4)(B), and applicable periods and 
                applicable conditions under paragraph (5).
                  (C) The measures of readmissions as described 
                in paragraph (5)(A)(ii).
          (8) Readmission rates for all patients.--
                  (A) Calculation of readmission.--The 
                Secretary shall calculate readmission rates for 
                all patients (as defined in subparagraph (D)) 
                for a specified hospital (as defined in 
                subparagraph (D)(ii)) for an applicable 
                condition (as defined in paragraph (5)(B)) and 
                other conditions deemed appropriate by the 
                Secretary for an applicable period (as defined 
                in paragraph (5)(D)) in the same manner as used 
                to calculate such readmission rates for 
                hospitals with respect to this title and posted 
                on the CMS Hospital Compare website.
                  (B) Posting of hospital specific all patient 
                readmission rates.--The Secretary shall make 
                information on all patient readmission rates 
                calculated under subparagraph (A) available on 
                the CMS Hospital Compare website in a form and 
                manner determined appropriate by the Secretary. 
                The Secretary may also make other information 
                determined appropriate by the Secretary 
                available on such website.
                  (C) Hospital submission of all patient 
                data.--
                          (i) Except as provided for in clause 
                        (ii), each specified hospital (as 
                        defined in subparagraph (D)(ii)) shall 
                        submit to the Secretary, in a form, 
                        manner and time specified by the 
                        Secretary, data and information 
                        determined necessary by the Secretary 
                        for the Secretary to calculate the all 
                        patient readmission rates described in 
                        subparagraph (A).
                          (ii) Instead of a specified hospital 
                        submitting to the Secretary the data 
                        and information described in clause 
                        (i), such data and information may be 
                        submitted to the Secretary, on behalf 
                        of such a specified hospital, by a 
                        state or an entity determined 
                        appropriate by the Secretary.
                  (D) Definitions.--For purposes of this 
                paragraph:
                          (i) The term ``all patients'' means 
                        patients who are treated on an 
                        inpatient basis and discharged from a 
                        specified hospital (as defined in 
                        clause (ii)).
                          (ii) The term ``specified hospital'' 
                        means a subsection (d) hospital, 
                        hospitals described in clauses (i) 
                        through (v) of subsection (d)(1)(B) 
                        and, as determined feasible and 
                        appropriate by the Secretary, other 
                        hospitals not otherwise described in 
                        this subparagraph.
  (r) Adjustments to Medicare DSH Payments.--
          (1) Empirically justified dsh payments.--For fiscal 
        year 2014 and each subsequent fiscal year, instead of 
        the amount of disproportionate share hospital payment 
        that would otherwise be made under subsection (d)(5)(F) 
        to a subsection (d) hospital for the fiscal year, the 
        Secretary shall pay to the subsection (d) hospital 25 
        percent of such amount (which represents the 
        empirically justified amount for such payment, as 
        determined by the Medicare Payment Advisory Commission 
        in its March 2007 Report to the Congress).
          (2) Additional payment.--In addition to the payment 
        made to a subsection (d) hospital under paragraph (1), 
        for fiscal year 2014 and each subsequent fiscal year, 
        the Secretary shall pay to such subsection (d) 
        hospitals an additional amount equal to the product of 
        the following factors:
                  (A) Factor one.--A factor equal to the 
                difference between--
                          (i) the aggregate amount of payments 
                        that would be made to subsection (d) 
                        hospitals under subsection (d)(5)(F) if 
                        this subsection did not apply for such 
                        fiscal year (as estimated by the 
                        Secretary); and
                          (ii) the aggregate amount of payments 
                        that are made to subsection (d) 
                        hospitals under paragraph (1) for such 
                        fiscal year (as so estimated).
                  (B) Factor two.--
                          (i) Fiscal years 2014, 2015, 2016, 
                        and 2017.--For each of fiscal years 
                        2014, 2015, 2016, and 2017, a factor 
                        equal to 1 minus the percent change in 
                        the percent of individuals under the 
                        age of 65 who are uninsured, as 
                        determined by comparing the percent of 
                        such individuals--
                                  (I) who are uninsured in 
                                2013, the last year before 
                                coverage expansion under the 
                                Patient Protection and 
                                Affordable Care Act (as 
                                calculated by the Secretary 
                                based on the most recent 
                                estimates available from the 
                                Director of the Congressional 
                                Budget Office before a vote in 
                                either House on the Health Care 
                                and Education Reconciliation 
                                Act of 2010 that, if determined 
                                in the affirmative, would clear 
                                such Act for enrollment); and
                                  (II) who are uninsured in the 
                                most recent period for which 
                                data is available (as so 
                                calculated),
                        minus 0.1 percentage points for fiscal 
                        year 2014 and minus 0.2 percentage 
                        points for each of fiscal years 2015, 
                        2016, and 2017.
                          (ii) 2018 and subsequent years.--For 
                        fiscal year 2018 and each subsequent 
                        fiscal year, a factor equal to 1 minus 
                        the percent change in the percent of 
                        individuals who are uninsured, as 
                        determined by comparing the percent of 
                        individuals--
                                  (I) who are uninsured in 2013 
                                (as estimated by the Secretary, 
                                based on data from the Census 
                                Bureau or other sources the 
                                Secretary determines 
                                appropriate, and certified by 
                                the Chief Actuary of the 
                                Centers for Medicare & Medicaid 
                                Services); and
                                  (II) who are uninsured in the 
                                most recent period for which 
                                data is available (as so 
                                estimated and certified),
                        minus 0.2 percentage points for each of 
                        fiscal years 2018 and 2019.
                  (C) Factor three.--A factor equal to the 
                percent, for each subsection (d) hospital, that 
                represents the quotient of--
                          (i) the amount of uncompensated care 
                        for such hospital for a period selected